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BP's Dividend at Risk?

The oil giant has capacity to protect its payout, but if oil remains below $40 a barrel through 2017, it may need to dial it back, writes Morningstar’s Stephen Simko.

In response, BP continues to announce more job cuts and further efforts to cut capital expenditures and operating costs. All this is aimed at lowering the company’s cash break-even level and protecting the company’s $7.5 billion dividend. While there is no question that BP can make some serious inroads in these areas, how long oil prices remains weak is out of the company’s hands. If sub-$40 oil prices extend into much of 2017, leverage will creep up considerably and could force the company to dial back its payout. While BP and the other European integrateds continue to have the highest yields, we still believe Chevron represents the best risk/reward play for yield-focused investors in this subsector.

Our fair value estimate and moat ratings remain unchanged.

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About the Author

Stephen Simko

Sector Director

Stephen Simko, CFA, is director of energy equity research for Morningstar. Before assuming his current position in 2015, he was a senior equity analyst, covering the oil and gas and renewable energy industries. Before joining Morningstar in 2008, he spent more than two years in corporate restructuring for FTI Consulting.

Simko holds a bachelor’s degree in finance from the University of Illinois at Chicago. He also holds the Chartered Financial Analyst® designation.

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