Another savage blow to income investors and pensioners as BP halves its dividend

Investors relying on income from their investments and pensioners have had a cruel year as the Coronacrisis has seen dividends slashed across the board – Why are Companies Cutting Dividends?

Royal Dutch Shell cut its first quarter dividend in April – the first reduction to its shareholder payment since the Second World War – and Britain’s banks suspended their payouts.

Now BP has added to their woes by halving its shareholder dividend following a record $6.7bn quarterly loss after the coronavirus pandemic hit global demand for oil.

This is the first cut in the company’s dividend in a decade and delivers a savage blow to UK pension funds and the army of pensioner investors who rely on the payouts – BP traditionally generates the largest dividend payment among the big blue chip FTSE 100 giants.

BP’s loss for the three months to June compares to a $2.8bn profit in the same period last year; the oil giant halved its dividend to 5.25 cents a share, compared to 10.5 cents in the first quarter.

The loss was due in the main to BP writing down the value of its assets after it cut its oil price forecasts; the company said the outlook for oil prices and demand was ‘challenging and uncertain’ and announced 10,000 job losses, 2,000 of which will be in the UK.

BP said it expected demand for oil to be up to nine million barrels a day lower compared to last year; it warned that the pandemic could weigh on the global economy for a ‘sustained period’.

Oil prices plunged as the coronavirus all but closed down major economies; in April, the price turned negative for the first time in history as producers paid buyers to take oil off their hands over fears that storage capacity could run out.

Link Group’s Dividend Monitor predict the total amount of payouts by British firms will fall by two-fifths in 2020; it said that dividends fell by a 57% in the second quarter of the year as 176 companies cancelled payouts and 30 more have cut them.

However, BP managed to cap the gusher by announcing a new strategy;  it said it wanted to ‘pivot’ from being a traditional oil company to an ‘integrated energy company’ and said it expects to achieve ‘net zero’ carbon emissions for the company by 2050.

Shorn of good news, markets responded positively to this news and despite BP’s loss and a lower dividend, the company’s share price rose by 6.26% to 298.6p.

Over the next decade, BP forecasts that oil and gas production will fall by at least one million barrels of oil a day, or 40% compared to 2019; it plans to invest in renewable and bio-energy as well as in hydrogen and carbon capture and storage technology.

In announcing its plans, BP chief executive said: ‘This coming decade is critical for the world in the fight against climate change, and to drive the necessary change in global energy systems will require action from everyone.’