Under Political Fire, BP May Cut or Suspend Dividend

CBS
Among the victims of the oil spill in the Gulf of Mexico, which has soiled beaches, shut down fisheries and destroyed wildlife, may be investors counting on their dividends of BP stock.

BP PLC has come under heavy pressure from President Barack Obama and the administration to suspend its dividend until the spill is stopped, as estimates of the amount of oil that has flowed into the Gulf from the company's damaged well was dramatically increased.

The oil giant, ranked by Forbes last year as the U.K.'s largest company, typically pays out $10 billion annually in dividends.

In Friday's Wall Street Journal, Monica Langley, Jonathan Weisman and Alistair Macdonald write that BP is considering deferring or reducing its second-quarter dividend, due to be announced on July 27.

BP's board of directors could consider cut or defer the dividend, or pay all or part of it in "scrip" (or I.O.U.) to shareholders.

"We are considering all options on the dividend. But no decision has been made," BP's Chief Executive Tony Hayward said in an interview.

BP Weighs Dividend Cut (WSJ)

CBS News correspondent Mark Phillips reports that would be hard on shareholders of the oil giant, which accounts for 12% of all U.K. stock dividends. But while 40% of BP shares are held in the U.K., 39% of shares are held by Americans.

This week's share turmoil -- the company's stock fell to its lowest level in 13 years on Thursday, but has rebounded -- came after U.S. Interior Secretary Ken Salazar said he would ask BP to compensate energy companies for losses if they have to lay off workers or suffer economically because of a six-month moratorium on deep-water drilling imposed by the Obama administration following the rupture at BP's Deepwater Horizon well.

The U.S. Justice Department added that it was planning to take action when asked at a Congressional hearing if an injunction was being considered against BP's plans to pay investors a dividend, worth some $10 billion annually, this year.

"You attack the dividend and you are attacking millions of British pensioners," said Tom Watson, a member of the opposition Labour Party who planned to officially table a motion in the House of Commons supporting BP.

The Associated Press reports that one BP executive was quoted at a company meeting yesterday as saying of the government's call to suspend the dividend, "This demand is chilling. The administration keeps pushing the boundaries on what we are responsible for."

Some analysts are expecting a cut. In a research note published Thursday, Evolution Securities said that it expects the current year's payout to be 28 cents a share -- half the level of last year.

"We fully agree with our fundamental analysts' view that BP can afford to pay the dividend and that they should pay the dividend," Evolution Securities said. However, given mounting political pressure, the firm believes "it is prudent for income-dependent investors to plan for a cut/suspension going forward."

The chief executive of Britain's National Association of Pension Funds said Friday that investors might be receptive to a suspension of dividends to protect the company's long-term future. Joanne Segars told the BBC that BP's "long-term" future was far more important.

"BP's current difficulties shouldn't have an immediate or serious impact on those saving into a pension scheme or on those who have retired," said Segars, the association's leader.

"The bottom line in this crisis is that BP will not only finish the job of clean up and repair, will pay all the damage and take the subsequent consequences for the event on its shoulders, cut or even halt dividend payment for one year should the board deem this necessary and at the same time, survive to tell the tale," said Howard Wheeldon, senior strategist at BGC Partners in London.

"BP does not need to be told by anyone how to run its business -- not by the president of the U.S., or by press and media."

The Associated Press contributed to this report.

  • David Morgan

    David Morgan is a senior editor at CBSNews.com and cbssundaymorning.com.

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