The Lemon Fool

Considering how respected his views are, I thought I'd post this for holders of the subject shares:

'Will BP and Shell be forced to cut their dividends? This is a question that has been keeping income investors, both private and professional, awake at night for some time. Now a new and authoritative voice has joined the debate. Neil Woodford, Britain’s most prominent income investor, has come down firmly on the side of those who think the oil giants’ dividends are unsustainable.


http://www.telegraph.co.uk/investing/sh ... quidating/

Well now might be the time to hide a *slight* cut from UK shareholders, whilst £/$ works in Shell's favour ...

DiamondEcho wrote:Considering how respected his views are, I thought I'd post this for holders of the subject shares:

'Will BP and Shell be forced to cut their dividends? This is a question that has been keeping income investors, both private and professional, awake at night for some time. Now a new and authoritative voice has joined the debate. Neil Woodford, Britain’s most prominent income investor, has come down firmly on the side of those who think the oil giants’ dividends are unsustainable.

Moderator Message:
edited as more than an extraxt. Raptor.

http://www.telegraph.co.uk/investing/sh ... quidating/

Not his first comment on 'big oil'.

Neil Woodford: Why I have sold my entire stakes in BP and Shell

http://www.telegraph.co.uk/finance/pers ... Shell.html

From October 2009!

For what it's worth, I recently halved my (overweight) holding in RDSB. Never sell Shell? Well, I'm not so sure. My intention was to rebuy some in next year's ISA, but there are other options.

Whilst I certainly share some of Woodford's scepticism, I note that Temple Bar, CTY, FCI and SCF still hold Shell in their top ten holdings. Holdings varying between 4% and 7%.

Woody, love him or loathe him, is a conviction stock picker. As well as avoiding oilies, miners, HSBC and other banks I also think he avoids Vodafone. And I don't think he'd buy Carillion with a twenty foot barge pole. Au contraire he still believes in Capita, for example

Very few managers have the guts to avoid quite a few of the top ten FTSE shares, as it means they may underperform the index.

Omitting these shares and including his rump holdings in innovative pharma means he will under or over perform accordingly. Last year was not good, for example, because he missed the surge in miners, oil and banks.

More worrying still is that the FTSE100 is paying out more in dividends than its earnings.

toofast2live wrote:More worrying still is that the FTSE100 is paying out more in dividends than its earnings.

Yes, I don't see how this can end well. It's also significant that the P/E ratio on higher yielders is actually higher than on lower yielders, which doesn't auger well for the "usual suspect" HY universe.

The problem in the UK is that we're all overly obsessed with dividends, which means companies do not cut them for fear of offending the shareholder base. At least, not until things get so bad that there is no choice.

In the US, one of the big three oil companies, Conoco Phillips, cut its dividend last year. Chevron looks like it cannot sustain its and only Exxon, which is run more conservatively and has a lower yield anyway, looks safe.

Unless the oil price shoots up and bails them out, I agree with Woodford that BP and Shell are feasting on their own entrails.

BP is 6% and RDSB is 8% of my pot. Both businesses are undoubtedly nibbling themselves currently with such high dividends. However neither are static in their re-engineering i.e. BP is still rejigging post Deepwater Horizon, Shell has huge potential operating efficiencies from the integration of BG. Furthermore cable has made the task of dividend payment easier post referendum.

Nice views from Woodford - something I had no idea on about before.

I'm inclined to agree with him. In fact, I won't be buying any of the major FTSE shares in the foreseeable future.

I wonder what his new income fund will be buying, and whether any of you will be buying it.

I hold Shell and HSBC, both unashamedly for the current yield. HSBC has said in its recent Annual Report that its dividend is sustainable and Shell is taking action to reconstruct its business. I need dividends to live off and so why would I not hold them? If they cut their dividend (either of them) I doubt that they will cancel them and so they will probably still have a decent yield. Neither is a Carillion or worse, a Cobham (famous last words)

Woodford is probably looking a decade on; I am looking at next year and so have no interest in Woodford's new income fund. Still, I do need to find a home for the cash from London & St Lawrence.

Dod

I'm not sure Woody expects a cut. I think what he is saying is that Shell is selling off businesses to meet dividend demands rather than investing in those businesses for long term growth. Woody would be happier if they cut the dividend and focused on long term growth. i think he has said much the same about GSK.

His focus is Total Return with a big nod toward dividend and dividend growth. Our focus is primarily a high and growing income, with a nod to TR.