Can BP’s share price weather a dividend cut in its quarterly results?

When is BP’s earnings date?

BP reports earnings for its second quarter (Q2) on 4 August.

BP earnings: what does the City expect?

BP is expected to report revenue of $45 billion, down 38% year-on-year (YoY), while the group is expected to report a pre-tax loss of $11 billion, from a pre-tax profit of $4.7 billion last year.

Big oil firms like BP are not likely to provide much in the way of good news for investors when they unveil their latest set of quarterly earnings. Brent crude prices averaged $29 in the three months to June, from $51 per barrel in Q1. A price war between Saudi Arabia and Russia, and a collapse in demand across the developed world thanks to the imposition of lockdowns to control the spread of Covid-19 lay behind the dive in oil prices.

From being cash machines for investors, the major oil firms now find themselves relying more and more on debt, and this has put pressure on income. As a result, BP, so long a stalwart of an income investor’s portfolio, is now expected to cut its dividend. BP suffered a hit of $14 billion in June, when it dramatically cut its expectations for oil prices and abandoned a host of projects. Crucially, BP’s rival Shell has already cut its payout, giving BP the cover it needs to follow suit.

How to trade BP’s earnings

BP’s Q1 results saw the shares gain 3.3% on the day. The average move on results day is 3.5%, but current options pricing points to a move of 4.2%.

Of the 27 analysts covering BP, 14 have ‘buy’ recommendations, with nine ‘holds’ and four ‘sells’ The median target price is 371p, compared to the current price of around 295p.

BP share price: technical analysis

The BP share price has seen remarkably little movement over the past four months. The bounce to 380p in early June was not followed up with more gains, the price instead dropping back to trade around 315p. The area around 290p has held as support, as it has done since March, preventing any major downward move. However, we have yet to see any indication that the price is likely to move back above 320p and create a more near-term bullish view.

All eyes on BP’s dividend

Will this be the quarter that sees BP cut its dividend? It is certainly possible, but given how widespread the expectation of a cut is, it may not provoke much downside in the shares. A gloomier outlook would however see them test recent support. Meanwhile, a substantially more optimistic forecast for the rest of 2020 and beyond is needed to provide a meaningfully bullish catalyst for fresh upside.