United Kingdom

BP's prized dividend faces chop after analysts forecast £5.2bn loss

BP is being widely tipped to slash its £6.7billion dividend this week.

The FTSE 100-listed oil giant, which is run by Bernard Looney, is scheduled to unveil half-year figures on Tuesday.

City analysts said BP could cut or shelve its payout alongside the figures, which have been forecast to show a $6.8billion (£5.2billion) loss in the second quarter of this year.

City analysts said BP could cut or shelve its payout alongside its half year figures on Tuesday

Colin Smith, an analyst at Panmure Gordon, said: 'We now expect BP to cut its dividend... with the second quarter results.'

Analysts at Quest, the cash flow specialist division of Canaccord Genuity, have also placed BP on its 'dividend at risk' list.

BP generates the largest dividend payments amongst the FTSE 100 blue chip stocks. Both private investors and big City pension funds and institutions would be upset by the cut.

Small shareholders in particular rely on companies such as BP for income in retirement – especially as bank savings accounts now generate almost zero returns.

The potential reduction of BP's dividend comes after Royal Dutch Shell cut its payout for the first time since the Second World War.

Shell's dividend was slashed by 66 per cent – from $15billion last year to $5billion this year. The move came after the oil price crashed following a massive row between Saudi Arabia and Russia.

At one point in April, the oil price in the US fell below zero for the first time in history.

Ben van Beurden, Shell's chief executive, said the 'monumental' decision to reset the company's dividend earlier this year was difficult but necessary to preserve the financial resilience of the company against the crisis of 'uncertainty'.

BP, though, opted not to cut its dividend, which at the time surprised many City analysts and investors.

Analysts expect BP will next week unveil a $6.8billion loss for the second quarter. During the same period last year, it generated a $2.8billion profit.

Experts also expect BP to reveal that it will take between $13billion and $17.5billion of non-cash charges following financial blows and exploration write-offs. The latter could total between $8billion and $10billion.

Aside from BP, other FTSE 100 dividends could be at risk this week. Diageo, the Johnny Walker to Smirnoff drinks giant, is also scheduled to announce full-year results which may include a cut in its shareholder payout.

Royal Dutch Shell cut its payout for the first time since the Second World War

The company will come under pressure to reduce the dividend after the closure of pubs and hospitality venues for months due to lockdown hammered its sales. Last year, Diageo handed shareholders £1.6billion in dividends.

The total amount of dividends paid out by British firms is expected to halve this year as companies look to preserve cash.

Some of the most reliable dividend payers including BT and HSBC have slashed their payouts.

Research by investment firm Octopus Investments found many income-focused fund managers have already removed BP from their portfolios over fears for the dividend. The proportion of equity income funds that include BP dived from 61 per cent in January to 43 per cent by the end of May. 

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