I’m looking at some of your favourite FTSE 100 companies and examining how each will deliver their dividends. Today, I’m putting oil and gas explorer BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) under the microscope.
Dividend policy
Helpfully, BG publishes its dividend policy within the Investor Relations section of its website:
“The Board’s dividend policy is to increase the dividend in line with the long-term underlying growth in US Dollar earnings. Interim dividends are usually one half of the total dividend paid in respect of the preceding financial year. Dividends will be announced in US Dollars but will continue to be paid in Sterling”.
Additionally, we know from the company’s latest annual report that:
“In considering the dividend level, the Board takes account of the outlook for earnings growth, cash flow and the balance sheet position”.
Dividend delivery
BG’s dividend policy contains no quantitative targets, such as a particular level of earnings or cash-flow cover for the dividend. This has enabled the board to consistently increase the dividend (in US dollars) by 10% each year after the company switched its reporting currency from sterling to dollars in 2010.
The board announced another 10% increase for this year’s interim dividend within its half-year results that were released last week. The increase is, of course, in line with the company’s stated policy that interim dividends will usually be one half of the total dividend paid during the preceding year.
Some City analysts are skeptical about whether BG will maintain dividend growth at 10% through the next couple of years. The skeptics have dragged down the consensus forecast dividend for the current full year to 28.4 cents (8.6% growth), followed by 30.2 cents for 2014 (6.3% growth).
BG certainly faces some near-term headwinds — including higher operating and depreciation costs, and political and social turmoil in Egypt — but analysts are, nevertheless, expecting earnings to cover the forecast dividends by more than four times.
While the level of cover makes BG’s dividend safer than most other companies’, the yield on offer is just 1.5% at a current share price of around 1,180p. As such, the company is never going to attract investors looking for income, but has appeal for those looking for growth.
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> G A Chester does not own any shares mentioned in this article.
