Stock of the Day: BP shares should close the gap to Shell’s

With the worst is over for BP, dividends could head higher.

Now that the worst is over for BP, dividends could be on the up.

That’s after underlying net profit gushed 138% higher to $6.2bn in 2017, allowing Britain’s No.2 oil major to book its first organic net cash balance since 2014. Strictly speaking, with payments for the 2010 Gulf of Mexico oil spill of $5.2bn, BP’s free cash flow situation, after dividends and capex, looks quite different. But BP still aims to cover such outlays with asset sales whilst a similar payment is forecast to come down to $1.1bn by 2020.  

At the same time, BP would still be profitable even if crude oil fell to $50 a barrel, if not below. Current oil values, would allow a disciplined capex within the group’s $15bn-$17bn annual range. If seen, around $9bn would remain that could be used for dividends, up 150% against 2017.

To be sure, significant execution risks remain. But a relatively benign oil price outlook could favour BP shares at least as much as those of arch rival Royal Dutch Shell. BP shares rose around 1.4% over one year compared to Shell’s 7% move. That differential looks likely to narrow now.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.