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Anyway interesting comments regarding SP vs Dividend. Basically I would prefer not to pay to much. I enjoy the divi it’s a good income source.
Jakers
Even excluding Gulf of Mexico debt.
BP will not be debt free in 2023.
It could be net debt free around then,but not debt free.
Gulf of Mexico debts are slowly becoming a less scary number now less than $13B still a huge number but getting close to half what it used to be.
Sekforde, BP will not be debt free by the end of 2023 unfortunately because of the gulf of mexico debt which will not be cleared until 2030 at the earliest based on the current annual payment schedule. This debt is not included in the 23bn
Jakers
Sekforde - well let's hope that level of buy back can continue. Very dependent upon the price of oil I imagine.
And zac it is of no consequence to look at the beginning of 2020. That was before the pandemic took hold and caused huge short term losses for oil and gas producers. It has also made many weary of the sector which remains of course vulnerable to volatile prices and uncertainty.
The $3.5bn was announced with the second quarter's results. At the moment the board is allocating 40% of free cash flow to share buy backs. So my $14bn assumes that that will be maintained which of course is dependent on maintaining the free cash flow achieved in the 2nd quarter.
The debt is now very small in relation to BPs size. A debt free company is very attractive to risk adverse investors. Looney has always recognised in every presentation that shareholders own the company and their interests are paramount - as they should be. BP shareholders have had a torrid time over the past 22 years. But it is all going to come right.
In theory, yes. In practice it's very different. The buy back yield since the beginning of 2020 is around 7%. The reality is a share price decline of 7%!
You also state that the current rate of buy back is $3.5bn per quarter. Where has this figure come from? Q1 was $1.6b, Q2 was $2.4bn and to date Q3 is around $1.1bn. That's a big difference to the annualised figure of $14bn you seem to be alluding to.
I think the big untold story is the debt reduction.
It’s truly amazing how much has already been paid off.
Without the buybacks and 40% oil reduction ,this amount of debt reduction would have moved sp as obviously company future would have been more secure.
When net debt comes to a reasonable level possibly next year as Sekforde says the cash is then free for something else.
How about us?
The problem with buybacks is that they must be continued.
Most company buybacks stop after a period and over time new shares get issued. If BP carry this on every year and get the shares in issue down to 17, then 15B etc it should be truly reflected in the SP.
''The share buybacks force the price higher which rewards shareholders in a more tax efficient way.''
Sekforde,the theory is sound but the reality does not always show it.
The buy backs mean that shareholders who keep their holdings own an ever increasing proportion of the company. If the market cap remained the same and $14bn worth of shares were eliminated then the share price would rise by 14.27%. The share buybacks force the price higher which rewards shareholders in a more tax efficient way.
Nice one Baz.
I don't want it all, but the company is performing admirably. Surely we should all share in that prosperity. I think good old Bob would have had us back to 10cents. Lol.
Meoryou thank you. I think BP is an extraordinary business. What particularly amazed me was how much debt it paid back in the 2nd quarter. $27.457 bn reduced to $22.816 bn. One only needs to project forward to the end of 2023 and BP becomes debt free. The relevant question then will become, what happens to the free cash flow which at present is being divided in a ratio of 60:40 (balance sheet buy backs)? As we mover through this year and next year both the company and the market will start to supply an answer. I do not think it will be more investments as BP is doing as much as it can sensibly manage. This free cash flow will I think also be paid out to shareholders either as additional buy backs or higher dividends. So with the yield calculated as I think it should be calculated the sp is clearly far too low. I am extremely keen on Harbour Energy where the free cash flow over the next 2 years is not far off its entire market cap. Half years results on Thursday should be stunning.
''That’s short hand for it’s too early on Saturday morning to go and calculate it.'' Well at the present 5p per quarter the sp would be £5.That will do fine.
I doubt they would ever give us it all as we obviously can’t be trusted with it ourselves.
My worry is if they don’t use it in buybacks they just buy someone expensively and waste it.
But I did say before that in the 90s a 1p increase in quarterly div resulted in £1 on sp within a year, so can you imagine what sp would be if we did get it all?
That’s short hand for it’s too early on Saturday morning to go and calculate it.
''Buybacks are mathematically the same as paying a dividend. BP is by far the highest yielding stock in the FTSE 100.''
If the buybacks ere all paid out in cash then ,the divy would be 83.5p per annum.I think Baz would rather have the money.
Hi Sekforde
Just looked back and when you did similar analysis in April
market cap was $ 78B so that’s a $20B jump despite BP having spent probably $3B in buybacks in the time and I oil price being about $10 lower
You did predict this at the time as you suggested that market cap would rise due to inflation and buybacks and debt reduction.
It does all suggest that the market narrative for BP is slowly changing.
It would be nice to be seeing another $20 B increase by year end ,time will tell
Thanks for your summary they are always interesting
Thanks Sekforde, very interesting analysis
Jakers
Thanks Sekforde, very interesting analysis
Jakers
The present pure dividend yield at the closing price in London 446p is 4.46%. The new quarterly dividend is 6.006 or 24.024 per annum which is 20.36p in sterling at current exchange rate. The market cap is $98.1 B but the current rate of buyback is $3.5 bn per quarter. Assuming maintained that is $14 bn for the full year. The buyback yield is therefore 14/98.1 or 14.27%. The true yield 18.73% (4.46+14.27) Buybacks are mathematically the same as paying a dividend. BP is by far the highest yielding stock in the FTSE 100.
zac,
Yes, correct.
If all you're interested in is maximum income look for something like BHP Group which is yielding over 10%
Pursestrings,
I hope you are not 100% in BP? Again I'm mega positive here but you should always spread risk.
"For income on a quarterly basis" - if income is all you're interested in then there are plenty of investments that offer a better dividend return than BP.
Don't forget, irrespective of your buying price, this is yielding around 4.25%
Pursestrings,
If the SP goes to £6 you sell either some or all and buy something else which pays a dividend, which you would consider undervalued.
I'm a long term holder of BP and am extremely bullish on the stock but when they were bouncing around £5.80-£6 in 2018 I sold a load.
Don't forget you can always buy them back again should the SP soften!
For income on a quarterly basis. Even considering the dividend reduction that is now rising nicely my overall gain far out ways capital growth. Anyone who bought during Covid or even Deepwater Horizon and has held will have done nicely.