BP (BP) stock has been falling in the current quarter. The stock has fallen 2.1% month-to-date and 2.3% sequentially, according to data from NYSE. Overall, the stock has fallen due to weaker results and lower crude oil prices. BP’s earnings fell by about 41% YoY in the third quarter mainly due to lower oil prices. In the current quarter, oil prices have risen. However, the average is lower compared to the same period the previous year.
BP and peers’ dividend yield
The fall in BP stock has raised its dividend yield to 6.6%—the highest yield among its peers. Royal Dutch Shell’s (RDS.A) yield is 6.5%. Meanwhile, ExxonMobil (XOM) and Total’s (TOT) dividend yields are 5.0% and 5.5%, respectively. Chevron (CVX) has the lowest dividend yield at 4.1%.
These stocks have also declined in the quarter. ExxonMobil, Chevron, and Shell stocks have fallen 1.3%, 1.1%, and 2.7%, respectively, sequentially.
BP announced a dividend of $0.615 per ADS, which will be paid on December 20. The company suspended its scrip dividend option for the third-quarter dividends. Instead, BP has offered a dividend reinvestment program to its investors. In the third quarter, the cash outflows towards dividends were $1.7 billion. For the first nine months of 2019, the cash outflows towards dividends were $4.9 billion.
BP’s share buyback
BP has been buying back shares in the current year. In the third quarter, the company bought back $215 million of net shares. The company aims to buy back shares to offset the dilution from the scrip dividend. In the first nine months, the company repurchased $340 million worth of shares.
BP bought about $500 million of shares in October. So, the company has already purchased over $800 million of shares this year.
The company has paid a consistent dividend and bought back shares when the environment is conducive. BP plans to lower the impact of scrip dilution. However, the company also focuses on deleveraging its balance sheet.
BP has a high percentage of debt in its capital structure compared to its peers. The company’s total debt-to-capital ratio was 43% at the end of the third quarter. The ratio rose in the current year due to the implementation of IFRS standards on leases.
So, the company plans to reduce its debt level. BP also intends to utilize the divestment proceeds. The company plans to sell over $10 billion of assets in 2019–2020. The divestment proceeds were about $1.4 billion in the first nine months.
After the company reduces its debt level, it expects to raise shareholder returns through dividends or buybacks. BP CFO Brian Gilvary also mentioned this in the third-quarter earnings conference call.
He said, “As the cash flows come through from the disposal proceeds next year, the balance sheet deleverages. As that gearing comes back down below 30%, I think that will then create a signal that will allow us to go and look at further distributions, either through a dividend or through buybacks.”
The company estimates gearing based on net debt, which is finance debt less cash. BP calculated its gearing at 31.7% at the end of the third quarter.
Read BP versus Chevron: Who Has More Financial Power? to learn more.