Investing Commentary

BP Reinstates Dividend, But Did it Really Need to Go?

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After suspending payments in June of 2010, BP has reinstated its quarterly dividend. According to their press release, the 42 cent dividend is payable on March 28. BP is one of the largest oil companies in the world, and had a long history of increasing dividends.

From the best that I can tell, BP is on the hook for a 20 billion trust fund, plus other miscellaneous charges, such as the 360 million dollar cost of building the six berms used to prevent oil flow further into Louisiana. At this point, I’m not sure anyone can pinpoint an exact number, but we do know this sum will be paid over a period of years, not months or days. For a company like BP, which still managed an operating cash flow of 13 billion in 2010, this is a speed bump, not a death sentence.

It’s a shame BP had to cancel it’s dividend in 2010. Yes, what happened in the gulf was terrible. And yes, BP is responsible to aid in the clean-up and compensate the victims. But the dividend cut was more than a conservation of cash. It was a PR move, meant to appease the angry Americans who felt big oil was ruining their lives, even as they gassed up their pick-up trucks and shrimping boats to head out for the day.

What I find truly disappointing was the short-sightedness of those who fought for the dividend cut. Sure, it looked great on the nightly news, but who truly paid the price? That would be the investors who watched their portfolio’s plummet after living through an already devastating recession. The retirees who depended on pension plans heavily invested in BP, especially those living in the UK. And the BP employees themselves, who not only lost work at Deep Horizon, but will now watch as their colleagues at the Texas City and Carson Refineries lose theirs, as BP divests these assets to help pay for the settlements. I can only hope that in addition to the dividend, a price correction will help get many of these people’s portfolios back to pre-2010 levels.

4 Comments

  1. BP had no choice. They were forced to suspend dividends even though they could pay for the spill and continue paying dividends.

  2. It just goes to show you the dangers of relying 100% on a dividend stock portfolio. Dividend Income is a wonderful thing, but you can’t bet the ranch on it. Companies are allowed to cut the dividend if they need to. Anything can happen to companies at anytime. BP in 2010, the US Banks in 2009, the Japanese in 1990… and the list goes on.

    However investors who held BP and didn’t panic sell and stayed the course, will be ok. The share price is only about $12 below its high I think, and 3.5% yield is pretty good!

    • Absolutely Ninja! Dividend investing is a proven strategy, but like all equities, nothing is guaranteed.

      And if you had faith in BP, and were buying the stock when it hit its low of $26.75, you would have a realized gain of 77%, plus this new dividend would have a yoc of over 6%…

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