I mentioned my positive interest in Direct Line Insurance in my previous post and the likelihood that they reinstate their dividend payment path on the 4th of August (this is now a confirmed date) with their H1 numbers.
At the other end of the spectrum we have BP producing their Q2 numbers on the same day and I am expecting a dividend cut from them this year. Does anybody really still believe the 10%+ ‘yield’ will be there? They pay dividends quarterly and the stated dividend policy is to decide on the dividend each quarter. BP reports in dollars and I concentrate on the dollar dividend amount (why? … because it was held constant at 60 cents a share from Oct 2014 to May 2018, fifteen consecutive quarters, while the only reason UK income funds could see an ‘increase’ in the sterling dividend was because of sterling’s weakness!). They have changed the rate of payment in Q2 before (July 2018 saw a small $ increase).
Meanwhile their main peer group comparator, Shell has already surprised me with the sudden and severe dividend cut along with their very ‘L’ shaped view of the world going forward. The Shell metric is “Our policy is to grow the US dollar dividend in line with our view of the underlying earnings and cash flow of Shell”. Ok, so it was a ‘reset’ from 47 cents a share to 16 cents at the end of April. A cut of two thirds, in my world…from a company who had not cut their dividend since WW2.
Bernard Looney has been the CEO of BP since February of this year and their new model to become a net zero emissions company by 2050 came into effect on the 1st of July with prior general comments from Mr. Looney such as “We have got to change – and change profoundly.” If they cut the dividend by 50% the yield would still be interesting at 5%+ and they could then probably get the gearing back down into their 20-30% target range, but you would have to live with the current ESG issues. Perhaps I am too early as they have a capital markets day on the 14-16 of September where they would have a bigger platform to justify and explain a dividend cut but I could still see 31.5 cents a share in as a distinct possibility in…
