Novacyt shares (LON:NCYT) have jumped more than 45% after it received approval from the U.S. Food & Drug Administration (FDA) for it’s COVID-19 testing kits. The Novacyt share price rose as much as 48% to 185p by mid day trading in London. Last week, the UK Investor Magazine highlighted Novacyt as one of the few companies providing investors with any positivity during the coronavirus crisis and today’s announcement is a significant milestone for the company. The FDA approval means Novacyt kits are now allowed to be used in US hospitals and laboratories to test for COVID-19. Graham Mullis, Chief Executive Officer of Novacyt, commented: “The US FDA EUA authorization is another important endorsement of the performance and quality of our COVID-19 test and demonstrates once again Novacyt’s growing role in tackling this pandemic.” “We are committed to providing clinicians around the world with our COVID-19 test and delighted we can now support the US market.” Novacyt has also recently received orders from Public Health England to the tune of £1 million and said last week total orders for COVID-19 had surpassed £8 million. The company gave no indication on potential size of orders from the US but said kits were available for immediate distribution. To deal with any surge in orders, Novacyt announced its was investing in additional capacity to deal with a predicted demand of 2 million COVID-19 testing kits.

Royal Dutch Shell (LON:RDSB) have announced a cost-cutting program in reaction to the oil price collapse and ongoing uncertainty around coronavirus. The Shell share price has declined more than 66% from the 2018 highs to recent intraday lows of 890p. Today’s measures are aimed at improving Shell’s financial situation and includes $3-4 billion of cuts to operating costs. The oil giant also said it would be ceasing its share buyback programme, but made no mention of changing their dividend. Ben van Beurden, Chief Executive Officer of Royal Dutch Shell, commented: “As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business.” “The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.” “In these very tough conditions, I am very proud of our staff and contractors across the world for maintaining their focus on safe and reliable operations while also ensuring their own health and welfare and that of their families, communities and our customers.” Despite today’s announcement raising questions about Shell’s short term profitability, equity analysts are still confident about the long term prospects of Royal Dutch Shell. John Woolfitt, Director of Trading at Atlantic Capital Markets said “clearly since we first highlighted it as a tip of the year the global backdrop has considerably changed, Oil prises collapsing and Cornavirus. Todays announcement has also highlighted the steps they are making in the current environment.” “Nobody could possibly have seen this coming at the start of the year but lets not get caught up in the near term moves. They are still fundamentally sound and still offer investors an opportunity to pick them up at considerably lower levels.” “Sharebuy backs have been reduced for the time being but no mention of a dividend cut.”

The BP share price (LON:BP) has crashed over 50% from the recent highs and the BP dividend now provides one the highest yields the oil giant has ever recorded. With a BP share price of 237p, the oil & gas company is yielding a bumper 14.7%. This yield is of course based on last year’s dividend and isn’t necessarily the yield investors will get going forward, if BP decide to amend their payouts. The sell off in oil prices induced by coronavirus and a production war between Saudi Arabia and Russia now brings the BP dividend into question. In particular, whether BP will have to cut their dividend. The increase in the quarterly dividend in Q4 from 10.25 cents to 10.5 cents means BP paid out $8.3 billion in dividends in 2019, up from $8.1 billion in 2018. The affordability of this payout will dictate whether the BP has to cut the dividend in 2020. Key to the affordability of the dividend is BP’s profit in 2020 and BP’s cash reserves.

BP Financial Outlook

BP’s profitability is likely to be severely dented in 2020, and this would be after 2019’s net profit more than halved to $4.2 billion from $9.6 billion in 2018. BP recorded an average Brent oil price of $64.21 in 2019. With oil price trading below $30 and Goldman Sachs analysts predicting oil could fall as low as $20, it is likely BP profits will gain be lower in 2020. This would mean that BP would be paying dividends out of retained earnings if it were to maintain current payout levels. To measure the affordability of making payments from BP’s cash reserves one must look at BP’s cash and equivalents which stood at $22.5 billion as of 31st December. Such a strong level of cash would provide support for the dividend for some time and the company also has signifiants cope to reduce Capex to help conserve cash. BP opted for this strategy during the oil price decline in 2015/2016 and maintained dividend payouts throughout.

Share Buybacks

In addition to the dividend on ordinary shares, BP allocated $1.5 billion to share buybacks. This provides some buffer against the dividend as the board would rather reduce or cancel share buy back before dreaming of cutting the dividend. A reduction or elimination of share buy-backs would mirror the move by peer Royal Dutch Shell, who announced they would be ceasing their share buyback program.

BP Dividend Cut

Investors must question whether the market has already priced in a dividend cut and everyone should be prepared for a reduction in payout. However, if BP halved their dividend to 5 cent, investors who purchased shares at current price would still receive a 7% yield. This is yield would still be than the long term FTSE 100 average that fluctuates around 4% – 6% and vastly more than you will now receive from a cash ISA after the Bank of England cut rates to 0.1%.

Exchange Rate Fluctuations

Investors must also take into consideration the exchange rate. The BP dividend is paid in US dollars and with the pound at record lows against the dollar, this has increased the historic dividend yield which will naturally decrease increase GBP/USD moves to the upside. If GBP/USD were to stay at 1.1640, BP’s 10.5 cent dividend would be worth 9.02p after the recent decline in sterling. This is roughly 10% more than the 8.155p investors received from the 2019 Q4 dividend based on GBP/USD of $1.28742 set on exchange rates 10th March to 13th March 2020.

BP Share Price

There are a number of factors driving the BP share price and with shares down over 50% YTD, investors biggest concerns will be a dividend cut which will ultimately dictate shares in the medium term. It is almost certain a dividend cut would be negative for BP shares. However, with BP’s past record of maintaining dividend through tough times and predictions of a the economic slowdown limited to one of two quarters, it would take something catastrophic for BP to cut its regular dividend payments.