2020 has proved a dangerous time to buy into some of the biggest UK shares like Royal Dutch Shell and BP (LSE: BP) I’ve long argued that buying BP shares is too risky, in spite of its mighty dividend yields. And today the oilie proved exactly why.
The FTSE 100 colossus decided not to cut dividends earlier this year in response to the crashing Brent price. But on Tuesday, BP was forced to follow Shell’s April decision and hack back the shareholder reward. It will be cutting the second quarter dividend to 5.25 US cents per share, it said, halving it from the 10.5 cents it shelled out a year ago.
The move’s been prompted by some truly shocking financials that showed BP swung to an underlying replacement cost loss of $6.7bn in the second quarter. This compares with a profit of $2.8bn printed in the same 2019 quarter. The reason for the deterioration? BP booked a whopping $6.5bn worth of write-downs as it marked down its oil and gas forecasts.
BP is the latest dividend slasher
This is the first time that BP has cut dividends for around a decade and is the latest in a flow of dividend cuts that owners of UK shares have had to stomach. More than half of all FTSE 100 companies have either cut, suspended or axed their dividends in 2020. And more could be coming as the economic impact of the Covid-19 pandemic rolls on.
I’m certainly not expecting BP to re-emerge as a generous dividend payer any time soon. The oilie said today that it would “pivot” from being an international oil producer to an integrated energy company. Still, the business of drawing oil from the ground will remain BP’s bread and butter for a long, long time yet. And consequently it faces prolonged earnings pressure as the economic downturn dents energy demand; massive fossil fuel investment in major-producing nations drives new supply; and growing stacks of ‘green’ legislation damage oil and gas consumption.
I’d still buy UK shares for big dividends
So 2020 has been an awful year for dividend investors. But it’s not to say that there are no longer any top-quality income UK shares to buy right now. You just need to know where to look.
For instance, I’d be very happy to buy shares in National Grid right now. This FTSE 100 energy giant has a monopoly on keeping Britain’s electricity grid up and running. And it’s a role that provides exceptional earnings visibility, economic downturn or not. National Grid isn’t likely to cut dividends any time soon and this means that its 5.5% is rock solid.
So don’t be spooked by BP’s groundshaking dividend cut. There are still plenty of brilliant dividend stocks like National Grid that can help you make stunning shareholder returns now and in the future. And The Motley Fool’s massive library of articles and reports can help you find them and maybe get rich in the process.
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Royston Wild 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.