BP (LSE:BP) is one of the largest commodity stocks in the UK. Given the size of the global business, one of the ways that management keep shareholders engaged at this mature stage is via dividends. The dividend per share payments have been rising, with the dividend forecast making it an attractive option for income investors.
The current state of play
BP pays out quarterly dividends. Impressively, it maintained this even during the pandemic. This is already a big tick in the box for investors that want sustainable income even when times are tough.
Over the last four quarters, the sum of the payments has been $0.26p. The individual payments were in the $0.052-0.054 region in 2021, increasing to $0.06 in 2022. The Q2 2023 declared dividend has jumped again to $0.0727.
I have to convert the dollar proceeds into British pounds to get an accurate dividend yield. This is because the stock is listed in pounds in the UK market. Using the share price of 515p, I get the current yield of 4.11%.
This is above the FTSE 100 average of 3.81%, but I get that it isn’t too exciting for someone wanting a high-yield option. Yet consider what the trajectory is looking like.
2024 and 2025
The rising dividend per share payments are forecasted to continue over the coming years. Starting in Q1 next year, it’s expected to increase to $0.0765, finishing the year at $0.08. In 2025, it’s expected to be at $0.084. This would be a 30% growth rate versus the current annual pay out.
In theory, if the share price stayed the same, this would mean the yield in 2025 would be 5.25%.
I feel that this dividend per share jump is realistic when observing how the business is performing. The H1 profit of $10bn might be lower than the $11.1bn from the same period last year, but we have to appreciate that 2022 was a one-off year of high profits. I expect things to normalise at a lower benchmark from here.
Yet at an absolute level, a half-year profit of $10bn is still an exceptional achievement and is something that can support dividends going forward.
Points to note
The risk to keeping these payments growing is net debt. This rose by 11.4% last quarter, and needs to be carefully watched so as not to impact cash flow.
Whenever I make a dividend forecast, I have to appreciate that the share price will fluctuate between now and the future. So my prospective yields in the future are at best a fair assumption.
The stock is up 13% over the past year and 70% over the past two years. So it’s important to remember that gains or losses on the share price also impact my overall return.
