Oil major BP (BP.) is riding high, up 3.3% to 518.1p, as it reports third quarter profit ahead of expectations. The company’s preferred measure of underlying replacement cost profit rose doubled year-on-year to $1.87bn against forecasts for $1.58bn.
The better-than-expected performance was driven by higher oil prices, production growth of 14% and lower Gulf of Mexico oil spill payments.
Significantly underlying operating cash flow in the first nine months exceeded both organic capital expenditure and dividend payments and chief financial officer Brian Gilvary says:
‘We have made strong progress this year in adjusting to the lower oil price environment and have now brought our finances, including the full dividend, back into organic balance at an oil price just below $50 a barrel.’
DOING THE MATHS ON BP’S DIVIDEND
The oil price is currently in an upwards trend - breaking through $60 per barrel yesterday on expectations OPEC will extend its production freeze beyond next March.
If the market starts to buy into the sustainability of BP’s dividend, then its yield could reduce from the current 5.9%, or in other words the shares could move higher.
Among the ways the company has been able to sustain its payout through a lean period is to rely on scrip dividends, effectively issuing dividends in new shares rather than cash.
By increasing the number of shares in issue this effectively dilutes existing shareholders. To make up for this the company has today announced plans to buy back shares.
