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BP to Cut its Shareholder Dividend?

Written By Brian Hicks

Posted June 11, 2010

It’s music to my ears.

BP could be forced to cut its dividend by next week.  And the stock could easily topple under $20, in our opinion.

It’s why we loaded up with puts in Options Trading Coach.  And loaded up with puts in Options Trading Pit, where we already banked half of the position for more than 100% in just days.

But the downside on a dividend pull could be devastating… as it should be. 

It’s time for BP to pay up for this spreading disaster in the Gulf… regardless of who it may hurt overseas.  We’d love to hear what you think of the situation and BP’s decision.  You can leave us a message below.

The only thing  that could prevent a dividend cut is the President, who is expected to speak with the company next week.

Here’s more from the source of the news, BBC News.

BP plans to suspend shareholder dividend amid oil spill

BP is expected to announce next week that it will suspend its shareholder dividend, the BBC has learned.

No announcement is expected to be made until after talks between BP and US President Barack Obama on Wednesday.

BBC business editor Robert Peston says that BP directors are to meet on Monday to discuss the payments.

BP has been under intense pressure from the US government, which wants BP to use the money to pay for the Gulf of Mexico clean-up.

Meanwhile, BP’s shares closed up 7.2%, recovering losses suffered on Thursday.

“In practice, Monday’s discussion at newly instituted weekly meetings of the board will be about when to suspend the payments, how long to suspend the payments, and what to do with the billions of dollars that would be saved and not paid to shareholders,” our business editor says.

Dividend options

Pensions expert and former government adviser Ros Altmann told the BBC that if the company did cut its dividend it would be “a blow”, but should not be taken “out of proportion”.

It looks increasingly likely that dividend payments will be ceased for a period – because of the intense pressure to do so from senior US politicians and the White House

“For people already drawing a pension it doesn’t really have much impact. For people saving for a pension, what we’re talking about here is one quarter’s dividend perhaps not being paid, certainly initially,” she said.

“It will only have an impact on people who are coming up to retirement immediately and will then have to convert their pension fund into a pension straight away, then the value of that pension fund will be less.”

The National Association of Pension Funds (NAPF) estimates that UK pension funds’ exposure to BP is about 1.5% of their total assets, which are worth more than £800bn.

Pensions expert Ros Altmann: “I don’t think we should take it out of proportion”

Joanne Segars, chief executive of the NAPF, agreed that the impact on pensions would be “relatively diluted” as pension funds invest in many different companies’ stocks and shares.

“The ability of pension funds to pay out pensions to today’s pensioners and tomorrow’s pensioners shouldn’t be affected by this crisis,” she said.

But she added: “If we saw a continuation of withholding of dividends or the company coming under further pressure and further speculation about its future then that’s a real issue.”

Share rise

BP shares closed at 390 pence on Friday, recovering the losses suffered during a choppy trading session on Thursday.

However, the oil giant’s share price has almost halved since the Deepwater Horizon oil spill began on 20 April.

This week, the crisis has taken on a more political dimension with UK Prime Minister David Cameron and senior ministers commenting on the oil spill for the first time.

BP chairman Carl-Henric Svanberg, who has been asked to meet President Obama next week, earlier spoke to both Mr Cameron and Chancellor George Osborne.

A Downing Street spokesman said Mr Cameron had told the BP chairman that he was “frustrated and concerned” about the environmental damage caused by the spill.

He added: “He said that it is in everyone’s interests that BP continues to be a financially strong and stable company.”

Mr Cameron will discuss the issue with US President Barack Obama during their regular phone call on Saturday.