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BP scraps dividend until 2011

BP is scrapping its dividend until 2011 after the oil firm agreed a £13.5bn compensation fund for victims of the Gulf of Mexico oil spill.

The oil giant was set to pay its first quarter dividend on 21 June, 2010 but has released a statement stating that no dividends will be paid for the second and third quarters of 2010.

The statement reads: “The Board remains strongly committed to the payment of future dividends and delivering long term value to shareholders. The Board will consider resumption of dividend payments in 2011 at the time of issuance of the fourth quarter 2010 results, by which time it expects to have a clearer picture of the longer term impact of the Deepwater Horizon incident.

“The Board believes that it is right and prudent to take a conservative financial position given the current uncertainty over the extent and timing of costs and liabilities relating to the spill.”

The news will have a big impact on pension fund and UK equity income investors both of which will see BP as a stalwart dividend payer. For example, FTSE 100 tracker funds generally held around 8 per cent of their assets in BP prior to the spill, simply because this is how much of that index the stock accounted for.

BP has agreed to pay £3.4bn into the compensation account, the escrow fund, before the end of 2010. The remainder is to be paid over the following three years. BP boss Tony Hayward is set to face the US Congress today.

Despite the news BP has seen the biggest rise in early trades in the FTSE100, having risen by 5.52 per cent in early trades.

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