Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.
In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of oil giant BP (LSE: BP) (NYSE: BP.US).
Dividends past
The table below shows BP’s five-year earnings and dividend record.
| 2008 | 2009 | 2010 | 2011 | 2012 | |
|---|---|---|---|---|---|
| Statutory earnings per share (EPS) | 113¢ | 88¢ | -20¢ | 136¢ | 61¢ |
| Dividend per share | 55¢ | 56¢ | 14¢ | 28¢ | 33¢ |
| Dividend growth | +29.9% | +1.8% | -75.0% | 100.0% | +17.9% |
In total, BP paid out 186¢ a share in dividends during the period, covered twice by total EPS of 378¢. For the latest year, cover was 1.8 times.
The earnings and dividend picture for the period is dominated by the disastrous Gulf of Mexico oil spill during 2010. Shareholders saw their dividends suspended initially, then rebased to a lower level. While income growth has now resumed, the 2012 dividend is lower than the payout of seven years ago.
A poor dividend performance from a company with an inferior safety record in its peer group.
Dividends present
The table below shows BP’s current-year dividend payments.
| Q1 | Q2 | Q3 | Q4 | |
|---|---|---|---|---|
| Dividend | 9¢ | 9¢ | 9.5¢ | To be declared |
Analysts are expecting a further 9.5¢ dividend for the fourth quarter when the company announces its annual results on 4 February — giving a full-year payout of 37¢ (up 12.1% on 2012).
Analysts are forecasting underlying EPS for the year of around 76¢ (down 18% on 2012’s underlying number), covering the dividend just over two times. The earnings fall this year isn’t due to a particular problem with BP, but to sector-wide weakness: a similar drop in EPS is expected for Royal Dutch Shell.
At a share price of 477p, BP’s current-year dividend (around 23p sterling expected) represents a yield of 4.8%.
Dividends yet to come
Analysts see high single-digit dividend growth for 2014, with a payout of something over 40¢ penciled in. They forecast a 15% bounce in EPS to 88¢, bringing dividend cover up to around 2.2.
Oil-company earnings can be highly volatile from year to year at the best of times, and BP’s recent earnings volatility has been compounded by the Gulf of Mexico oil spill and its aftermath.
It is to be hoped that what some commentators have called a systemic problem with the safety culture of BP has finally been addressed. And that any future incidents are less frequent, less calamitous and less costly.
Shareholders can be hopeful of dividend growth ahead of inflation across a full economic cycle — with some ebbing and flowing of the pace of growth through the different phases.
