BP dividend yield likely to be cut as it’s effectively liquidating itself – Woodford

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The BP dividend is likely to be cut in the view of Neil Woodford, who believes that BP and its peers in the oil and gas sector are going to ‘great lengths’ to avoid a dividend cut (by increasing debt and selling assets), but this will likely catch-up with them negatively in the future. Woodford notes that oil and gas firms are effectively ‘liquidating themselves’ to keep up their dividend, but it is for this reason they are unattractive because a dividend cut seems likely:

Within the UK stock market, examples of this can currently be found in the oil & gas sector. I believe that both BP and Royal Dutch Shell have unsustainable dividends that are being financed by a combination of debt and asset disposal. In effect, these companies are liquidating themselves rather than facing up to the need for a dividend cut. The only thing that can save them from that eventuality, in my opinion, is a return to sustainably higher oil prices – something that I think is very unlikely to happen. In short therefore, although I know this is a contrarian view because these are widely held shares, particularly by income funds, the oil majors are an unattractive investment proposition while the threat of a dividend cut hangs over them.

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