View more on these topics

BP chief assures shareholders

BP chief executive Tony Hayward reassured shareholders that dividends will continue to be met in spite of the ongoing oil leak in the Gulf of Mexico.

According to Reuters, Hayward told reporters at BP’s headquarters: “We will meet our obligations to stakeholders.”

Schroders group chief investment officer Alan Brown thinks fears of a dividend cut are overstated. He says: “If the costs of the Gulf disaster mount to the point where BP has to cut its dividend, pension plans will feel the pinch. But how likely is it that BP will need to cut? We believe that this is well within BP’s ability to fund its dividend through borrowing and internal cash generation, albeit cash generation is naturally sensitive to oil price assumptions.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “It is a judgement call. BP is sitting on a huge pile of cash and if the bills are stretched over a few years there are sound reasons to believe it can continue paying out. But there is a strong mood in the US to make this British company a scapegoat and it may make a symbolic cut to appease the Americans.

“Pension funds are concerned as they bought BP because it pays out and that is what they care about. First and foremost this is a tragic environmental disaster but people are now realising that it is UK pension funds pouring out into the Gulf of Mexico as well as oil.”

But Evolution Securities macro research analyst Philip Isherwood thinks the firm will be forced to bow to pressure: “We believe BP will bow to political pressure in the US and suspend dividend payments for the remainder of 2010. Although on our numbers they can afford to and should pay the dividend we believe it will be suspended for the remainder of the financial year 2010. This has a severe impact on the UK dividend yield.”

Earlier this week, Fitch downgraded BP to AA from AA+. Moody’s downgraded BP to Aa2 from Aa1. Neither ratings agencies have commented on future dividends from BP shares, which is currently at 8.51 per cent.In March, BP was the biggest stock in the FTSE 100 with about an 8 per cent weight.

Since the seriousness of the spill emerged at the end of April, BP’s share price has fallen from more than 650p at the end of April to 450p this morning. According to TD Waterhouse, BP was the biggest trade last week as investors piled in to take advantage of its falling price.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment