Dear Pat: I was wondering if you would recommend the purchase of shares in BP plc? They have a great dividend yield. What are the risks it could stop paying that dividend? Thanks.
BP plc, $42.63, symbol BP on New York (Shares outstanding 3.1 billion; Market cap: $133.1 billion), is one of the world’s largest integrated-oil companies.
BP’s shares currently yield 7.9%. The company’s chairman recently said that BP plans to continue paying this dividend rate, and at the same time maintain the company’s investments in growing its reserves and production. However, he did say that BP had to strike a balance between dividend payouts, investment in new oil-and-gas projects and maintaining its debt near current manageable levels. To conserve cash, BP has stopped buying back its own shares.
BP doesn’t generate enough cash flow to pay for both dividends and investments below an oil price of $60 U.S. per barrel. Oil now trades at just over $50 U.S. a barrel. So, unless oil prices rise, BP will have to borrow money to meet all of its commitments and keep paying dividends.
The company’s dividend seems safe for now, but would likely be cut…
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Does TSI Network Use the Information It Receives?
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