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Can BP plc, Royal Dutch Shell plc, BG Group plc, BHP Billiton plc & Rio Tinto plc Retain Their Thumping Yields

I can scarcely remember a time when so many big-name stocks were offering such thumping yields.

Oil giants BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB) now yield 5.74% and 5.57% respectively.

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Even companies I always thought of as primarily growth stocks, BHP Billiton (LSE: BLT) and Rio Tinto (LSE: RIO), are delivering 4.78% and 4.05% a year.

This is cause for celebration, but only if the dividends are sustainable.

The prime reason these stocks are offering yields of 10 or nearly 12 times base rate is that their share prices have tanked, largely thanks to falling energy and commodity prices. 

Can these companies justify throwing cash at investors when they’re cutting jobs and capital expenditure?

Still Sure Of BP And Shell?

Investors cheered last week when BP and Shell publicly defended their generous dividends.

BP certainly doesn’t want to start cutting its dividend after only restoring it relatively recently, so it was good to see management pick it out as a priority.

Shell’s dividend is worth a whopping 13% more than it was last year, thanks to the recent 4% hike and stronger US dollar. With its dividend paid in dollars, the greenback’s growing clout could boost that even further over the next year.

Shell now accounts for an astonishing 8% of all UK dividends. Like BP, management is publicly committed to a high dividend, but both companies can only keep their word if the oil price picks up.

The recent bounce in Brent crude, now above $57 as price falls cut supply and cheaper fuel boosts demand, suggest the worst may be over. I suspect the price will quietly creep upwards in the second half of this year, although I can’t see it re-scaling last summer’s highs.

If I’m wrong, the pressure on these dividends will only grow. But they seem safe for now.

BG Or Not BG?

Oil explorer BG Group (LSE: BG) has also been hit by the oil price, although it has some protection against falling LNG prices after striking long-term supply agreements before recent price falls.

Yielding 1.92%, this isn’t a stock that many income seekers are relying on anyway. It is more of a growth play, and a highly disappointing one, with the share price down almost 20% over the past five years.

I abandoned BG Group 18 months ago because its recovery seems too much of a long haul, and I see no reason to change my mind.

Copper-Bottomed Crash

BHP Billiton and Rio Tinto have also pledged to protect their dividends, despite the falling iron ore price, and shrinking demand from China.

The cash is still flowing as they ramp up production, so for now we can take them at their word. I just wonder how long they can sustain this attitude if commodity prices stay low, as I suspect they will due to slowing China.

If broker Liberum is correct and copper and iron ore are set to “crash”, BHP and Rio’s share prices could come under pressure, along with their progressive dividend policies.

But with analysts expecting Rio to raise its dividend when it reports its full-year earnings on Thursday, they also look safe. For now.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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