Page 13 - DIY Investor Magazine - Issue 23

One alternative to investment is to make an acquisition.
In 2015/2016, during the oil price bear market, RDS agreed to buy and completed the acquisition of BG Group for £47 billion which gave it high quality oil fields off the coast of Brazil and enhanced its global leadership in natural gas.
More recently, in 2018, BP acquired some US shale oil assets from BHP for $10.5 billion.
Disposals also complicate the picture with RDS selling off assets to help pay for BG and BP doing likewise
to pay for claims and fines arising from the Macondo disaster of some $67 billion.
All in all, the above shows how difficult it is to judge the cash flows and profitability of these giant companies.
The consensus of analysts is that RDS and BP have improved a lot from the dark days of 2015/2016, when cash coverage of their dividends was low and the dividends had to be paid partly by issuing new shares.
The fact that both stocks yield over 6% indicates a degree of market scepticism about their dividend sustainability which should be disproved as predicted cash flow generation comes through.
13 DIY Investor Magazine | Oct 2019