Nothing lasts forever. Even the mightiest companies can face existential threats. Remember ICI? Marconi? They’re just names now.
Campaigners reckon all humanity faces an existential threat from global warming and, as Greta Thunberg’s cohorts take up arms against carbon, major FTSE 100 companies could end up as collateral damage. The BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB) share prices are both coming under pressure. This is a worry for shareholders, because the oil majors are some of the most generous dividend stocks on the entire UK stock market.
BP’s share price currently yields income of a whopping 6.98% a year, while Shell’s dividend yields 7.57%. These thrash the returns on cash, where you will be lucky to get more than 1%. No wonder they continue to underpin so many successful Stocks and Shares ISA portfolios, both for investors seeking growth, and those taking income in retirement.
Stock market fossils
They are torn between playing down the threat and planning for it. Outgoing BP chief Bob Dudley reckons the world will need oil and gas for some time yet, and will still account for 73% of energy in 2040. In my view, he’s right to say decarbonising the world economy won’t be easy, but wrong to underplay the potential pace of change.
New CEO Bernard Looney is targeting net zero carbon emissions by 2050 as part of a group overhaul, and will continue the shift away from oil and gas production towards renewables. This will be a challenge as he has to maintain BP’s generous dividends and reduce its $45.4bn debt pile at the same time.
Shell has shown how hard it is to live up to promises in this area. It pledged to invest up to $6bn in green energy projects between 2016 and the end of this year, but looks set to spend just a third of that. Over the same period, it’s lavishing more than $120bn on fossil fuel projects.
Trend is not a friend
Yet a shift is underway, and BP and Shell risk being left behind. BlackRock, the world’s biggest fund manager, is pushing sustainability. Boris Johnson is driving electric car use. Offshore wind is spreading, solar panels proliferating. Scientists are exploring fusion. Even BP accepts renewals will be biggest energy source by 2040. WTI crude idles just above $50 a barrel. Oil futures are low for the next decade.Â
There will be no stopping the green revolution, as the planet keeps warming and people carry on worrying. This is taking its toll on both the BP share price, up just 2.82% in five years, and the Shell share price, down 12.55%. Dividend income is now the main reason to invest in these two stocks, not share price growth.
The tobacco giants have survived the war on cigarettes, and BP and Shell can survive, if they’re able to adapt. As yet, there’s no existential threat to these two companies and their dividends. But, as I said, nothing lasts forever.