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Will BP Slash Its Dividend?

Summary

I ran a dividend safety analysis on BP.

The 8.6% dividend yield is attractive but the result of falling stock prices.

Fundamentally, BP must sacrifice its dividend or its balance sheet.

(Source: Guru Focus)

BP PLC (NYSE:BP) has been deeply hurt by the oil bear market. The current stock price immediately reflects this. We have not seen these lows since BP decided to spill its oil, allowing birds of all sorts to steal our oil.

Whether the current state of BP is worse than that during the oil spill is questionable. In either case, it looks like the bottom lies roughly at $30. So could things get worse for BP or are we really at a bottom?

Logically, now is worse than 2010. The oil spill was a PR nightmare and did put a dent in the business. But overall, BP was still running and increasing its dividends to shareholders.

The last dividend increase was in August 2014. So as to the question "How could things get worse," the answer is obvious: Even if its stock stabilizes at $30, BP could cut its dividends.

And this brings us to today's article: a fundamental analysis of BP's dividend safety. This study was requested after a similar article of mine on ConocoPhillips (NYSE:COP) and its dividend safety:

BP's Dividend

Let's start with the viewpoint of a BP investor. The dividend increases have been consistent since 2010. Yet these increases have declined in value:

Some investors likely predicted the eventual situation we now find ourselves in: a constant dividend, no annual increases. This alone is cause for alarm, as it hints at BP struggling to even maintain a dividend.

In the past, dividend increases preceded increases in the stock price:

Now with a constant dividend, we see BP falling. BP seems to have bottomed out, as many dividend stocks do, as a result of the dividend yield becoming increasingly appealing to non-BP holders:

The current yield of 8.6% certainly is appetizing...


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