BP Stock: Dividend Cut Possibility Creates Opportunity

“You pay a high price for a cheery consensus.” No wonder everything always comes back to Warren Buffett. How can you impart more investing wisdom about the importance of getting the valuation right than those nine words?

That quote was on my mind when I reviewed the various possibilities for someone purchasing shares of BP at different price points since 2010. An incorrect intuition that I sometimes have is the notion that, over medium periods of time, investors in the same corporation ought to earn somewhat similar results. If you buy shares of BP, you are the owner of an entity producing 1.2 million barrels of oil and oil equivalents per day, and whatever the business results of that may be, that is going to be a close approximation of what you get.

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Abercrombie & Fitch Stock Down 14% Today

Last month, I wrote an article critical of Abercrombie & Fitch (ANF) stock. I said, in part:

Theoretically, the premise ought to be pretty simple: Abercrombie yields 5%, the historical performance of the S&P 500 is 10%, so all you need is the maintenance of the dividend and 5.1% earnings per share growth to beat the market.

But I am unpersuaded. The current $0.80 annual dividend payout takes up all of the earnings, and perhaps even more so, and this is fertile soil for a ripe dividend cut. And secondly, there is no five-year comparison period in the past ten years in which Abercrombie shareholders can point to growing earnings. This means that you can’t even rely upon the current $0.70 to $0.90 base to serve as a low point. Things could get worse.

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