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BP and Shell record mega-profits as firms exploit soaring energy prices

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BP and Shell record mega-profits as firms exploit soaring energy prices

RECORD gas and oil prices since the Ukraine conflict have helped deliver bumper dividends for shareholders in energy companies.

By TOM HILL

Both gas and oil prices had already been pushed up over winter as supply failed to keep pace with demand bouncing back from the pandemic. Since Russia’s invasion of Ukraine prices have been squeezed even further with oil soaring past $100 (£79.64) a barrel to heights of up to $130 (£103.52). The increased revenue from energy has helped deliver soaring returns for investors with the oil sector seeing dividends rise 29 percent in the first quarter of 2022 according to data firm Link Group. Link points to an “astonishing rebound in oil prices” which it says has “delivered a dramatic turnaround” for energy firms.
The contribution of energy firms helped drive up UK dividends by an average 12.2 percent on an adjusted basis.

Among the top 10 dividend payers for 2022 are Shell, BP and National Grid.

The growing profits for energy firms has attracted criticism given the UK’s current cost of living crisis with some calling for a windfall tax on the gains.

So far though the Government has dismissed the idea with Justice Secretary Dominic Raab calling the idea “disastrous”.

Speaking to Sky News today Mr Raab said the tax would “damage investment in energy supplies we need and hike bills.”

Despite the rapid gains, energy firms still remain lower in the rankings for dividends than before the pandemic with considerable headroom for growth.

Another area predicted to see rapid growth is mining, driven again by soaring commodity prices.

According to Link, surging mining dividends are expected to add a £4.5 billion upgrade to forecasts for 2022.

Mining stands to benefit from surging prices of key metals such as palladium and nickel which have been boosted by supply fears due to the Ukraine conflict.

Ian Stokes, Link Managing Director for Corporate Markets in the UK and Europe, said: “2022 started as strongly as we expected, and we anticipate the rest of the year to surpass our expectations.

“The war in Ukraine is partly responsible as it has pushed oil and metals prices ever higher, driving strong profits in related sectors.

“The mining sector cannot sustain its breakneck pace of dividend increases nor the size of its special dividends indefinitely, but the boom continues for now.

“Meanwhile the oil sector is back – both in the black and in the headlines – though its distributions would have to double to regain pre-pandemic highs. In inflationary times, investors have often looked to commodities like these as a hedge against rising price levels elsewhere in the economy.”

While much of the growth in dividends has been driven by soaring commodity markets, healthcare has also appeared as a big factor thanks mainly to an increase in the size of AstraZeneca following its acquisition of rare disease specialist Alexion.

The Covid vaccine maker ranked as number 1 among the top dividend payers for quarter one of 2022, up from second place the year before.

Overall Link found an average return of 3.7 percent for investors in UK companies.

David Smith, Manager of Henderson High Income Trust, described the UK as “an attractive market for income” with dividends “significantly above the yield available on bonds or cash”.

SOURCE

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