Dead-Weight Dividend Stocks: BP (BP)
Why It’s Dead Weight: Oil uncertainty; Unwieldy payout ratio
With a current dividend yield of 6.3% and the prospect for higher crude oil prices, oil giant BP plc (ADR) (NYSE:BP) makes for an interesting prospect. When one takes a closer look at BP’s books though, red flags start to wave.
Yes, BP has swung back to profitability after getting hit hard — along with oil prices — in early 2016, thanks to the 100% rebound crude has logged over the course of the past twelve months (almost to the day). Goldman Sachs expects oil prices to at least hold steady for the foreseeable future, bolstering the bullish argument for BP.
It’s going to take a lot more than “holding steady” from oil prices for BP to be restored as one of the market’s top dividend stocks, however. Last quarter’s earnings of 29 cents per share was the most profitable in the past four quarters, yet the company has continued to dish out a quarterly dividend of 59.5 cents per share.
How does that work for that long? BP is borrowing to keep the dividend payments going.
If the profit level were anywhere close to the payout and/or if crude oil was destined to move to a price of $100 per barrel in the near future, it may be worth considering. Neither of those conditions are in sight, however, and the market is starting to put two and two together.