June 13, 2024

Paull Ank Ford

Business Think different

BP PLC’s dividend and what else to watch for on Tuesday

Among the other announcements, numbers from Diageo and easyJet will also be of interest

’s () second-quarter results on Tuesday are widely expected to bring about a cut to the oil supermajor’s dividend.

Amid a widespread bonfire of dividends in March and April, BP held firm with 10.5 US cents in the first quarter and based on the group sticking to that level for the whole year it currently stands as the single biggest dividend payer in the FTSE 100, at around £6.7bn.

BP’s shares stand on a forward dividend yield of more than 10%, “which some argue may be in ‘too good to be true’ territory,” said Russ Mould, investment director at AJ Bell.

Indeed it is one of most-held stocks on the London market because of this income stream, with many thousands of small investors on the register. 

Analysts at UBS, house broker to the oil group, backed up this view of the dividend, noting that “consensus, the futures market and our own discussions imply a cut is widely expected among investors”.

But the group has plenty of excuses to make the move, with rival Shell cutting its payout by two-thirds the previous quarter making it markedly easier for new boss Bernard Looney.

One of these reasons and the second thing for investors to look out for is the level of net debt, which rose to US$51bn at the end of the first quarter, another is the impact of the tumultuous markets this year. 

These results coming a month and a half after Looney told investors to prepare for write-offs of US$13-17.5bn because of the “enduring impact” of the coronavirus pandemic on the global economy, and two months since he revealed 10,000 job cuts.

Keep an eye out if there is any further refining of the level of these write-offs and the level of job cuts, as the Irishman said most of the redundancies, representing 15% of its workforce, will be completed by the end of the year, though he warned “we will likely have to go even further”.

With Looney trying to reposition BP into a ‘net zero’ company by 2050, investors and analysts will also be keeping an eye for comments alongside the results and ahead of a big strategy presentation in September.

The write-offs mean the second-quarter numbers are likely to lead to a loss at the bottom line, though this will be the third time in four quarters, so plus ça change.

Did Diageo keep the fizz in its profits?

Moving from the black oily stuff to the other black stuff that comes out of pipes, as Guinness maker  () will show how sales have picked up since the hospitality sector resumed trading.

The drink giant, which also makes Smirnoff vodka and Johnnie Walker whisky, saw a big fall in on-trade sales, namely bars and restaurants, balanced by an uptick in the shops channel.

A fifth of its revenue comes from the Asia Pacific region, which has seen a lift in restrictions earlier than in Europe or the US with a slow recovery.

Most of the damage in its final results is likely to have been done in Europe which accounts for 24% of sales, Hargreaves Lansdown noted, and is more exposed to bars and restaurants.

“Any declines in revenue are likely to have a disproportionate impact on profits,” said analyst Sophie Lund-Yates.

“Diageo has some large fixed costs for its breweries and distilleries, meaning even a small fall in sales can leave a large mark on margins.”

Spanish quarantine may cloud the skies for easyJet

There will also be a focus on easyJet PLC () on Tuesday as the budget airline releases a trading update, where it will not be possible to ignore the impact of the recent resumption of UK quarantine restrictions on arrivals from Spain, one of the most popular destinations for holidaymakers in the summer months.

Alongside Heathrow airport, British Airways and other travel firms, the airline has written to the UK government to beg policymakers to take a more nuanced approach to quarantine, however, such overtures are currently being rebuffed by ministers.

With this in mind, and the looming threat of a second wave of infections across the world, the company’s outlook is likely to remain the most critical factor, as well as its cash balance and how long it can stay afloat if its planes find themselves grounded again amid a surge of new coronavirus cases.

Significant announcements expected on Tuesday 4 August: 

Trading announcements: easyJet PLC (),  PLC ()

Finals: Diageo PLC (),  ()

Interims: BP PLC (), Group PLC (),  (),  (),  (),  (),  PLC (),  (),  Group PLC (),  PLC ()

Economic data: US factory orders