Home Business NewsBusiness BP’s bumper profits and a buyback bonanza for the FTSE 100

BP’s bumper profits and a buyback bonanza for the FTSE 100

by LLB Reporter
2nd Aug 22 11:47 am

The debate over the rights and wrongs of BP’s bumper profits will run and run but, from the narrow perspective of investment, the oil major’s latest share buyback means FTSE 100 members are on track to return record amounts of cash to their shareholders in 2022.

A forecast aggregate dividend pay-out of £85 billion almost matches 2018’s peak of £85.2 billion and share buybacks are now firmly on track to set a new record, with £46.9 billion already announced or implemented for this year. That breezes past the prior peak of £34.9 billion, also set in 2018.

Thirty-four members of the FTSE 100 have announced or carried out share buybacks in 2022 to date.

BP’s $3.5 billion second-quarter plan supplements outlays of $1.6 in Q1 and $2.3 billion in Q2 and catapults the firm into second place in terms of this year’s buyback announcements by FTSE 100 firms. It also cements the oil and gas sector’s position at the top of the buyback charts, as ranked by industrial sector.

AJ Bell Investment Director Russ Mould said: “This buyback largesse complements analysts’ forecasts for aggregate ordinary dividend payments from the FTSE 100 of £85 billion. NatWest has also just declared a £1.7 billion in special dividends. Combined, they equate to a forward dividend yield of 4.2% on the FTSE 100 and the buybacks add a further 2.3% to that, to take the cash yield from the FTSE to 6.5% (or £134 billion in forecast cash returns).

“That may provide some succour to patient investors who are looking at a broadly flat capital return from the FTSE 100 in the year to date, although even that is the second-best performance among major indices in the world in 2022 far, trailing India’s equally modest gains, in local currency terms.

“Those planned cash returns may therefore be helping to persuade investors to stick with UK equities rather than look elsewhere. Although there always remains the danger that buyback plans are revised and dividend forecasts prove over-optimistic, should a recession or another unexpected development strike.

“Buybacks are particularly subject to revision, as there is far less stigma when a management team quietly parks a programme compared to when a boardroom has to sanction a dividend cut.

“In 2020, FTSE 100 firms returned £10.2 billion to their shareholders via buybacks but scrapped plans for a further £10.3 billion as the pandemic spread, lockdowns were imposed and the globe plunged into a recession, to the great detriment of corporate profits, cash flow and, in some cases, balance sheets.

“Cynics will also flag how buybacks tend to be pro-cyclical. Buyback activity reached its high in 2006-07, as animal spirits were running most strongly just before the Great Financial Crisis swept the world. Over £60 billion in buybacks across those two years did nothing to support share prices in 2007-09 and buybacks slowed to just £3 billion in 2009 by the time the crisis was passing, and equity markets had collapsed and thus become much cheaper.”

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