Here’s the BP dividend forecast through to 2024

The oil giant’s profits have surged due to unusual market conditions, but Roland Head sees change ahead. Will BP’s dividend stay safe?

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The BP (LSE: BP) shares price has lurched lower recently, losing 15% in just one month. I’m wondering whether this sudden sell-off is a sign of some new risks that could affect the safety of BP’s dividend.

BP dividend: latest forecasts

Despite a dividend cut in 2020, BP remains one of the top dividend payers in the FTSE 100. The oil and gas giant has paid out more than $4bn in cash to shareholders over the last 12 months.

City analysts covering the stock expect BP’s payout to rise over the next couple of years — but only slightly.

In this table, I’ve listed the latest dividend forecasts I can find for BP, together with the expected dividend yield, based on a share price of 385p.

YearForecast dividend*Dividend yield

*Based on $1.20/£1 exchange rate

A dividend yield of around 5% from BP shares could be attractive, in my view. But we all know that oil and gas prices can be volatile. How safe is BP’s dividend?

Good news, bad news

The good news is that I don’t think the recent share price slide is likely to have any impact on dividend forecasts. Current forecasts show the dividend being covered five times by earnings this year, with cover falling to around four times earnings in 2023. Both figures are well above the benchmark level of two times earnings I normally look for.

I think that BP’s dividend looks very safe for the foreseeable future. But I am worried that future growth could be limited.

CEO Bernard Looney’s latest guidance is for dividend growth of around 4% per year through to 2025. However, I think it’s worth remembering that before oil prices surged last year, BP wasn’t planning any dividend growth at all.

In 2020, the company cut the dividend and set out a new policy for a fixed dividend of 21 cents (17.5p) per share. Any further surplus cash was to be used for share buybacks, or investments in low-carbon projects.

BP shares: what I’m doing

Underlying net profit is expected to reach $22bn this year. That’s nearly double last year’s figure of $12.8bn. However, analysts expect profits to fall by 40% to around $13bn by 2024, as BP’s profit margins return to more normal levels.

I agree with this outlook. Although high oil and gas prices have grabbed most of the headlines, BP (and its rivals) have quietly been benefiting from a less obvious source of extra profit.

Fears that sanctions against Russia would cause petrol and diesel shortages have allowed BP’s refineries to jack up their prices, boosting their profit margins.

BP reported an average refinery profit margin of $18.90 per barrel during the first quarter of 2022. That’s nearly three times the $6.70 per barrel margin reported in 2020.

In my view, this is why Looney is only paying out a small slice of earnings as dividends. He doesn’t expect profits to stay this high and needs to make sure the dividend is still sustainable when market conditions return to normal.

I think BP looks in good shape right now, but the shares aren’t cheap enough for me, given the limited outlook for growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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