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Can BP and Royal Dutch Shell weather the storm?

Screen Shot 2015-01-12 at 08.45.23From an article by Kyle Caldwell published by The Telegraph on 23 Jan 2015 under the headline:

“Oil shares yield 6pc, but are the dividends safe?”

Since June the price of Brent Crude has fallen from $116 a barrel to just below $50 last week. The plunge means these companies will generate far lower revenues and, with their costs still high, will see their profits fall.

Some investors have already lost faith as shares have fallen sharply. But those buying in today could be tempted by the yield on all of these shares rising because the price has fallen. At around the 6pc yield mark, Royal Dutch Shell and BP at a glance look attractive.

Some of Britain’s fund managers, however, have ruled out buying. Steve Davies, who manages the Jupiter UK Growth fund, said: “Unless you think the oil price will recover from here these shares are not a buy. I think the heavyweights – BP and Royal Dutch Shell – can weather the storm and pay dividends, through debt if needs be, but they will not be able to continue doing this next year or in two years’ time unless the oil price recovers.”

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