TAKING STOCK: Where Next For BP Dividend Refugees?

17th Jun 2010 12:44

By David Cottle A DOW JONES NEWSWIRES COLUMN It doesn't seem terribly long ago that markets were mulling the chances of troubled BP walking away from a dividend payment, as its slow crucifixion in the Gulf of Mexico ground ever onward. Well, now the White House has bitten down hard and the U.K.-based oil major is, in fact, to suspend three dividends and, maybe, even more. In response to sustained political pressure, the company's board has opted to stop payments for 2010's second and third quarters, and it's giving up on the already promised first-quarter dividend too. The ready cash will go instead towards a $20 billion fund for cleaning up the worst oil spill in U.S. history. Thousands of barrels are still gushing daily from BP's stricken well, as they have been since the Deepwater Horizon drilling rig exploded over it, fatally, on April 20. The move could cost BP shareholders, many of them, famously, U.K. pension funds, roughly $7.5 billion during the next three quarters. BP has said it will consider resuming payments in 2011, but could face pressure to cancel them even then, and wait instead until the Gulf recovers from this massive spill, the effects of which are likely to dominate world headlines long after the oil leak itself has finally been staunched. So, clearly, income investors are out in the cold; one of their safest bets has come spectacularly unstuck. BP's protests that it could well afford to both pay off investors and clean up the U.S. Gulf Coast, have come to naught. Obama and Co. have decided only one of the above will happen and, it appears, that is that. So, for fund managers and all, the race will be on to make up any shortfall the loss of BP's dividend represents before the next dividend distribution period. According to Evolution Securities, BP's cuts leave just three titans, Vodafone, Royal Dutch Shell and GlaxoSmithKline, accounting for more then 30% of dividend income in the U.K. market. They'll no doubt be popular. Evolution's analysts suggest Shell, especially, may be worth a look for those trying to fill a BP-related gap, assuming of course that they still have the stomach for oil stocks. London-listed companies going ex-dividend between now and the end of the third quarter, of which there are about 40 in the FTSE 100, or those which will pay two dividends between now and the end of the year, around 30, could also stand to benefit from the attentions of those hit by BP's forced action. It certainly leaves a very big hole to fill. The oil giant's dividends have in the past totaled as much as one pound in every seven paid out by companies in London's FTSE 100 index. (David Cottle has been a financial news reporter since 2000. Before joining the Taking Stock column as special writer he reported on corporate credit, the U.K. economy and sovereign debt markets for Dow Jones Newswires. He has also edited, and written for, the company's Market Talk product in London and Singapore. He can be reached at +44 20 7842 9436 or by email: [email protected]) TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. (END) Dow Jones Newswires June 17, 2010 07:44 ET (11:44 GMT)