Shares of integrated energy giant BP (NYSE:BP) fell roughly 10% in July, according to data from S&P Global Market Intelligence. That extended this year's pain, with the stock down roughly 40% through the first seven months of 2020. That's up from the worst of the year's downturn, but investors were increasingly worried about BP's future as July unfolded and the shares slid lower through the month.
The big story is that oil prices are low because of a supply-and-demand imbalance that was aggravated by COVID-19-related economic shutdowns. That's terrible news for companies like BP, where the top and bottom lines are driven by oil prices.
In fact, when the company reported its second-quarter earnings in early August, they were just as bad as feared. BP lost $6.7 billion, including a $6.5 billion one-time charge. It had warned of that charge in June so investors weren't exactly surprised, but it was still an unwelcome development and a lot of red ink.
However, one of the biggest fears was that BP would end up slashing its dividend. As the month of July unfolded, investors soured on the company's shares in anticipation of weak earnings and the associated dividend announcement.
The fear proved well founded, as the company cut its dividend by a huge 50% when it reported earnings in early August. As is often the case when investors punish a stock in anticipation of a dividend cut, the stock actually rose after the cut was finally announced.
Along with the second-quarter earnings announcement, BP laid out a fairly aggressive plan to shift its business toward non-oil energy businesses. It's not giving up its oil business, but it will be investing less in the space and more in other areas.
Investors need to step back and re-evaluate the company as it heads down this new path. This is no longer the BP it was just a few months ago.