Troy’s Brooke: What to expect from BP’s dividend tomorrow

Troy Asset Management’s Francis Brooke has cautioned against overconfidence on BP’s anticipated announcement of a dividend increase when it reports its Q4 results tomorrow morning.

The oil giant is expected to announce a hike for the first time since it reinstated its dividend at the end of 2010, with some analysts suggesting a considerable increase could be on the cards.

But while BP's dividend is now around half the level seen prior to the Gulf of Mexico disaster, the manager said he does not expect the company to return to such levels in the near future.

"Some will get overly enthusiastic and think BP will double its dividend. I do not think it will do that but BP will show shareholders its intentions - and it has the cashflow to support that," said Brooke, manager of the £428m Troy Trojan Income fund.

Chief executive Bob Dudley told investors in October BP had "turned the corner", but the obvious shadow hanging over its return to strength is the civil trial over the Gulf of Mexico oil spill.

The trial will begin on 27 February - unless talk of a $20bn-25bn "global settlement" agreed by BP and other parties turns out to be accurate, but is not seen as an immediate obstacle to a dividend raise.

"There will be a lot of noise about lawsuits and litigation, but on balance the story is more positive than negative," said Brooke.

Nomura analysts believe BP's $4bn Q4 settlement with Anardarko was a positive for the company but remain unsure of the extent of any forthcoming hike.

"The company did indicate in late October that there would be a review of 2012 distribution plans in February. The settlement with Anardarko of USD 4bn in Q4 provides a platform to increase the dividend earlier than previously anticipated - we only assume an increase in H2 2012," they said.

"Capex also remains a key lever in the cash cycle - we estimate capex will increase in 2012 to $22bn, while medium-term capex will move towards $24bn-$25bn (both estimates include exploration)."

Brooke bought more of the stock when it fell to 370p last autumn - by the end of the year BP was Trojan Income's second largest holding at 3.5% of the fund - and remains positive despite expectations of mixed newsflow.

"There will be setbacks that are unavoidable, but there remains scope for a dividend increase. Management will make some comment; they tend to signal their intention for the year, and I would not be surprised if that is reasonably positive."