BP p.l.c. (LON:BP.) Looks Interesting, And It's About To Pay A Dividend

BP p.l.c. (LON:BP.) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, BP investors that purchase the stock on or after the 11th of May will not receive the dividend, which will be paid on the 23rd of June.

The company's next dividend payment will be US$0.066 per share, and in the last 12 months, the company paid a total of US$0.27 per share. Based on the last year's worth of payments, BP has a trailing yield of 4.3% on the current stock price of £4.923. If you buy this business for its dividend, you should have an idea of whether BP's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for BP

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. BP is paying out just 18% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether BP generated enough free cash flow to afford its dividend. The good news is it paid out just 16% of its free cash flow in the last year.

It's positive to see that BP's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see BP has grown its earnings rapidly, up 54% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, BP looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. BP's dividend payments per share have declined at 1.9% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Is BP worth buying for its dividend? BP has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about BP, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for BP that we strongly recommend you have a look at before investing in the company.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.