Shareholders set to continue enjoying dividends as BP flounders
It has been announced that BP will be binning another 7,000 jobs by the end of 2017 amid financials that detail an annual loss of £4.5bn in 2015.
The counterpoint to this is that Bob Dudley, BP group chief executive, said in a statement that, “All of this [medium-term plans for longer-term growth] underpins our commitment to sustaining our dividend and then growing free cash flow and shareholder distributions over the long term.”
What does this mean for the public?
What this means for the majority of people is that their pensions and private investments in trackers won’t be taking as big a hit as they might otherwise do – and considering that BP shares fell 10% on Tuesday, that is a sobering thought.
In fact, this highlights one of the major issues tracking the FTSE100 has, which is that its very much exposed to these huge companies that can grab massive profits one year and then suffer huge loses the next. You can read more about this in our story ‘A lesson from history: how sensible investing could have made you a million.’
In similar news, GlaxoSmithKline, which is looking at a pre-tax loss of £416m this quarter, also stated that its dividend, which offers a yield of around 6%, would be held steady during 2017.
Trackers come out of the closet
On the subject of tracker funds, one of the on-going arguments within certain circles of people is that of passive versus active investing – see ‘Should you invest in tracker funds?’ for more on this.
One blow for active investing supporters is that the EU’s securities regulator is scratching its chin after making the discovery that as much as 15% of actively managed funds are actually hoodwinking investors and simply tracking a stock index.
This means that many people are being completely ripped off, considering that charges for actively managed funds relative to passive ones are extraordinary.
Steven Maijoor, who chairs the European Securities and Markets Authority (ESMA) says : “Investor protection is core to our mission and the preliminary findings raise questions that merit closer analysis.”
However, it must be noted that the ESMA lacks the powers to enforce action itself and can only lean on national regulators.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.