Investors cheered as BP announces 5.6 per cent dividend hike

Bob Dudley, chief executive of BP (Getty Images)

BP cheered its investors as it announced a 5.6 per cent dividend hike on Tuesday alongside plans to sell $10bn (£6.2bn) of assets by the end of 2015 and return most of the proceeds to shareholders.

The latest asset sale, which wasn't a complete surprise but was considerably greater than had been expected, pushed up BP's shares by nearly 6 per cent to 477.5p, making them the biggest riser in the FTSE 100 index.

BP also reported a better-than-expected 30 per cent decline in third-quarter profits, to $3.2bn, helped by the lack of interruptions from the hurricanes that typically blight production in the Gulf of Mexico during the period.

"These are very solid numbers and the dividend growth and potential for buybacks is also good for investors," Iain Pyle, an analyst at Sanford C Bernstein, said.

BP increased its dividend by 5.6 per cent to 9.5 cents. This is still well down from the peak dividend of 16 cents before the Gulf of Mexico oil spill in 2010, when it accounted for £1 in every £6 paid into UK pension funds, but continues its rise since it was scrapped to conserve cash and later reinstated. The group's shares jumped by 26.35p to 477.50p.

The boost to shareholders' pockets from the dividend increase and assets sales - which are likely to result in a share buyback - outweighed the decline in the group's third quarter profit. This was largely due to a 74 per cent dive in profits from BP's downstream refining and marketing division, which suffered from weak refining margins in the US and declining production following the sale of its Texas City and Carson refineries.

A BP spokesman warned that refining margins would continue to be weak this quarter "due to very high gasoline stocks and new competitor capacity additions as well as seasonal demand".

BP declined to say which assets it would sell, although a spokesman confirmed they would be "non-core" ones. They are likely to be "mature" assets as well as those yet to be developed and could be based in any part of the world. He implied the North Sea would be exempt, naming the area as one of the key areas of BP's business, although he declined to categorically rule out any sales in the region.

BP's latest planned asset sales follow the disposal of $38bn of businesses in the wake of the Gulf of Mexico oil spill in 2010 that have been used to fund compensation payouts. They are also in addition to the $27bn sale of its 50 per cent stake in the troubled TNK-BP joint venture last year.

Production for the quarter was 2.2 million barrels of oil equivalent a day, down 2 per cent on the year-earlier period. But BP said underlying production rose by 3.4 per cent, before the impact of divestments.

Bob Dudley, BP's chief executive, said: "I think the approach we are taking with BP, with an intense focus on high-margin quality growth and capital discipline, will prove to be the right one. I am confident that it will lead, as planned, to increasing cash flow, and a progressive dividend as part of the growth in returns that our investors expect and deserve."