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How safe is BP's (LON:BP.) dividend payment?

2nd Apr '19 by Jack Brumby

BP is an integrated oil and gas company with reporting segments including Upstream, Downstream, Rosneft, and Other businesses and corporate. The oil and gas operator is a global giant and is listed on multiple exchanges around the world. It has a market cap of $148.26bn.

For the fiscal year ended 31 December 2018, BP plc revenues increased 24% to $298.76bn and net income excluding extraordinary items more than doubled from $4.25B to $9.26bn thanks to a rebounding oil price. The group pays out an attractive rolling dividend yield of 5.48%, which is forecast to rise steadily over the next two years.

I'd like to know how safe BP's dividend is. Dividend cover (earnings per share divided by dividend per share) of two times or above is strong. Anything below one and a half times - as is the case for BP (LON:BP.) - should be stirring us to investigate in more detail.

GET MORE DATA-DRIVEN INSIGHTS INTO LON:BP. »

Calculating Bp’s dividend cover ratio 

A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It happens all the time. With that in mind, let’s take a look at BP’s (LON:BP.) dividend cover.

We can get all the information we need to see if Bp has an adequate level of dividend cover from the group’s StockReport. The group’s FY18 EPS was 46p and its FY18 dividend per share was 40p. 

Divide the former by the latter and we get a trailing twelve-month dividend cover for Bp of 1.15. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety.

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

As for Bp (LON:BP.), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.

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Bp
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1.15%
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