BP p.l.c. (LON:BP.) is about to trade ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, BP investors that purchase the stock on or after the 13th of August will not receive the dividend, which will be paid on the 18th of September.
The company's next dividend payment will be US$0.0866 per share, and in the last 12 months, the company paid a total of US$0.35 per share. Based on the last year's worth of payments, BP has a trailing yield of 5.0% on the current stock price of UK£5.172. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, BP paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 32% of its free cash flow in the past year.
It's good to see that while BP's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.
Check out our latest analysis for BP
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at BP, with earnings per share up 3.2% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. BP's dividend payments per share have declined at 1.4% per year on average over the past 10 years, which is uninspiring.
Final Takeaway
From a dividend perspective, should investors buy or avoid BP? BP has been steadily growing its earnings per share, and it is paying out just 32% of its cash flow but an uncomfortably high 96% of its income. All things considered, we are not particularly enthused about BP from a dividend perspective.
If you want to look further into BP, it's worth knowing the risks this business faces. Our analysis shows 3 warning signs for BP and you should be aware of them before buying any shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.