JP Morgan says BP dividend is relatively high and safe

A lower outlook for crude oil prices in 2016, following the weak start to the year, led analysts at JP Morgan to lower their forecasts for European integrated oil companies´ earnings per share in 2016 and 2017.

However, greater investor confidence in the outlook for oil prices meant the share price of those companies in their coverage universe - BP, Total, Galp - should trade closer to their analysts´ estimates for their valuation using a 'sum-of-the-parts' methodology.

Indeed, on average they raised their target prices for those stocks.

Brent crude oil was now expected to trade at an average of $45 and $55 per barrel in 2016 and 2017, with the broker´s forecasts for each year having come down by $5.

In particular, analyst Nitin Sharma said he preferred those companies that had lower oil price breakevens, such as BP and Total.

Both oil majors were likely to "deliver organic cash cover for the dividend at or below $55/bbl", he said.

Sharma also added BP to the broker´s Analyst Focus List, explaining in a research note sent to clients that its dividend was "relatively high" and "safe".

The analyst bumped up his target price from 400p to 410p and reiterated his 'overweight' view on the shares.

"We believe that question marks on BP’s dividend sustainability are likely to decline through 2016 – BP’s guidance of $50-55/bbl organic cash break-even (post dividend) is credible, in our view. We also believe that big-ticket M&A risk attached to BP is unwarranted given its healthy project pipeline, good long-term exploration track record, and limited balance sheet room."