BP’s 8% Dividend Not Worth The Gamble

One of the hottest topics of debate on Wall Street in the past two years is when the oil market will bottom and what will happen next. With shares now sitting near 20-year lows, BP (BP) stock owners are hoping that they can continue getting paid more than 8% per year while they watch and wait for the oil saga to play out, but reality may be a bit more complicated than that.

BPBP’s current dividend yield is the company’s highest yield in more than five years, but it’s not because management is feeling particularly generous. BP stock is now down more than 38% in the past two years, and its dividend yield only nosed above the 8% mark following a nasty Q4 earnings miss. The company reported net losses of $6.5 billion on the year in 2015.

Dividend Safe… For Now

The more you dig into BP’s poor performance, the less appealing and less certain that huge yield seems to get. However, despite market skepticism, CEO Bob Dudley is reassured investors that the dividend is safe in its Q4 earnings release:

“Our plans set out a clear course for BP for the medium term and will allow us to deliver growth in the longer term. All of this underpins our commitment to sustaining our dividend and then growing free cash flow and shareholder distributions over the long term.”

The “clear course” he refers to includes the aggressive cost-cutting measures the company has planned, such as laying off 7,000 employees and trimming an additional $7 billion in costs through 2017. BP already reduced expenses by $3.4 billion in 2015.

While other oil stock investors must pin their hopes on a bounce-back in oil prices, BP stock owners only need for the company to stabilize enough for the dividend to be protected. Unfortunately, that seems like a big “if” at this point.

Deja Vu?

Investors are…

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