BP Cuts Dividends

https://www.bbc.co.uk/news/business-53647407

One of my better stocks for paying Dividends too! :sob:

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It’s a good move for you as a shareholder though. Shows they have management with foresight. The market reacting with +7% at this moment has the same view.

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You can just sell some shares to recreate a dividend, don’t be constrained by a company’s dividend policy (which is ultimately completely arbitrary) .

I’m predominantly a dividend investor. I do have some that don’t pay dividends, but I am keeping those for later as I’m hoping they increase in value to sell at higher price. I like dividends coming in as they supplement my normal income. I’m not into the idea of selling off here and there or swing/day trading.

I don’t mean swing/day trading, I just mean receiving a dividend is basically the same as selling shares.

If you would have received £100 in dividends (and corresponding decrease in share value by £100) before BP cut you can replicate that by selling £100 of shares - don’t be annoyed if the company’s policy doesn’t align with your goals.

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I think the Oil price will bounce back eventually, when thing start to return to normal.

But I think cutting the dividend at this time is a good move to preserve capital. I have a lot of dividend stocks and I know what you mean about income. But as I reinvest the dividends it doesn’t make much difference in practice for me. If the company is stronger in future because they cut the dividend in bad times that’s a good thing

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Not sure I agree with that. if you create your income by selling shares you are at the mercy of the share price, which can get get pretty far detached from reality at times. If you are forced to sell some while the price is depressed due to some temporary situation it can reduce your investment by a disproportionate amount

Also while we don’t have fractionals on UK stocks you might be forced to sell more that you want to, particularly on a high priced share (not so much BP, but something like AZN this could be significant)

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I agree, they’re doing this to save what remains right now and I get it for the long run it’ll be for the better. Just stings a bit as historically they have been one of the better dividend paying stocks. Like you said I have no doubt they’ll bounce back in good enough time.

Think i’ll go with the mantra of buy low and sell high, so in this case for me, buy while the stock is low so when they do bounce back and reinstate the full dividends, i’ll have even more!

Ok that’s true if the price is temporarily misaligned, but for something highly liquid like BP I can’t see it being too much of a problem, perhaps for penny stocks it could be problematic. Yeah non-fractionals does change the equation a bit as well in some cases.

I just mean in most cases people should be agnostic to the company’s dividend policy because we have the ability to sell shares or reinvest dividends we can make our own decisions.

If a company issues a dividend and you don’t want to reduce your holding / increase your cash: Reinvest the dividend - it’s as if the dividend didn’t happen.

If a company doesn’t issue a dividend and you do want to reduce your holding / increase your cash: Sell shares equivalent to the dividend - you just recreated it.

I think this “homemade dividend” idea works if the shares you hold are rising in proportion to the amount that you would sell (preferably rising faster than the dividend yield). In the case of BP the share price has been choppy, but essentially flat for 20 years.

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Right, but that’s because if you were not reinvesting dividends you’ve basically been selling BP shares for the past 20 years.

If there was another company “AP” with the exact same earnings as BP but didn’t issue dividends you could sell off shares at the same rate over those 20 years and be in the same position now.

In the reverse situation:

Someone could reinvest dividends in BP over the past 20 years and they wouldn’t have any cash but their equity would not be flat - it would have gained all that value. That would be identical to the investor in “AP” who didn’t sell anything over years.

Selling in a declining market is the same as taking a dividend.

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It’s true that if they hadn’t paid the dividend the share price would probably be higher by an equivalent amount. My argument is more that the choppyness of the share price means there were some some pretty bad times to sell. The dividends have been mostly reliable apart from in times of major disaster or the recent pandemic, but they are bad times to sell as well (assuming that the price comes back up)

I think this is the equivalent of a safe withdrawal rate, from something like a pension fund.

Not everyone is a fan of dividends:
https://www.fundsmith.co.uk/news/article/2018/10/03/financial-times---busting-the-myths-of-investment-who-needs-income

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I agree fluctuations could have an impact, I think it’s just too small to worry about.

If you sold on a quarterly basis you’d have made 80 sales over the past 20 years, a few percent over or under here and there are going probably going to cancel out in the long run.