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A BP gas station with a sign displaying gas for $ 0.99 a gallon on April 24, 2020, in Southgate, Michigan.
Gregory Shamus/Getty Images
It was an unusual day in London stock-market trade on Tuesday, where the company that preserved its dividend fell while the company that cut its payout in half surged.
BP BP, +6.45% shares rallied after the energy giant cut its dividend in half after reporting a nearly $17 billion loss. BP outlined a plan to invest in low-carbon activities and reduce oil and gas exploration by 40% over a decade.
Bernard Looney, BP Chief Executive, tied together the low-carbon push and the dividend reduction on a call with analysts. “I like to think of it as being rooted in strategy and amplified by COVID,” he said. “So it’s deeply rooted in strategy, and our strategy is that we wish to become an integrated energy company. To do that we have to invest; to do that we have to have a strong balance sheet. We want to be able to invest continuously into there, not chopping and changing.”
Diageo DGE, -5.31% shares slumped 6% as the alcoholic beverage maker said sales during the fiscal year fell a worse-than-forecast 9% and it didn’t offer up sales guidance for the current year. Diageo did maintain its dividend.
U.K. investors now have a strong idea what the dividend yield is likely to be for the top companies. “Now BP has cut its dividend, I somehow feel we are closer to completing the set of FTSE 100 income giants that should have, and have, cut dividends given the stress to business COVID-19 has created,” said Helal Miah, investment research analyst at The Share Centre.
Miah pointed to a number of companies for income. In the pharmaceutical sector, GlaxoSmithKline GSK, -0.12% yields 5% and AstraZeneca AZN, -1.60% yields 2.5% with growth potential. National Grid NG, -0.13% and United Utilities UU, +0.92% offer yields around 5%, Vodafone’s VOD, +0.82% is close to 7%, and consumer products groups Reckitt Benckiser and Unilever have stable profits to support their dividends.
Miah said there are “amazing indicative yields” on the tobacco stocks, with British American Tobacco BATS, +1.09% and Imperial Brands IMB, +1.33% showing potential income returns of 8% and 11% respectively.
