Yahoo Finance Should You Buy BP p.l.c. (LON:BP.) For Its Upcoming Dividend?
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that BP p.l.c. (LON:BP.) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase BP's shares before the 11th of May to receive the dividend, which will be paid on the 23rd of June.
The company's upcoming dividend is US$0.066 a share, following on from the last 12 months, when the company distributed a total of US$0.27 per share to shareholders. Based on the last year's worth of payments, BP stock has a trailing yield of around 4.3% on the current share price of £4.923. If you buy this business for its dividend, you should have an idea of whether BP's dividend is reliable and sustainable. As a result, readers should always check whether BP has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for BP
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. BP has a low and conservative payout ratio of just 18% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see BP's earnings have been skyrocketing, up 54% per annum for the past five years. BP looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. BP has seen its dividend decline 1.9% per annum on average over the past 10 years, which is not great to see.
Final Takeaway
Is BP worth buying for its dividend? BP has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. BP looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in BP for the dividends alone, you should always be mindful of the risks involved. For example, BP has 2 warning signs (and 1 which is potentially serious) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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