There is increasing speculation that federal lawmakers will force BP (BP) to eliminate its $10 billion dollar dividend payment due in July. Lawmakers are concerned as to how it will look for BP to pay a dividend while the Gulf of Mexico is still gushing with oil. It appears more likely than ever that BP will suspend its July dividend payment in the face of mounting governmental pressure. The question remains, Does the government have the right to make BP suspend its dividend?
The Government’s Take
1) It doesn’t look good from a political perspective to see BP shareholders receiving cash at a time when there is a huge oil spill caused by BP.
2) BP needs to preserve capital as the company does not know the extent of its liability. There will be huge liability claims from deaths, injuries, unemployment, and environmental damage.
3) It’s in the best interest of BP to eliminate its dividend if the oil company wants to remain an ongoing entity. The $10 billion dollars saved could help BP potentially avoid bankruptcy.
A Shareholder’s Take
1) As a BP shareholder, I would prefer if the government left any decisions on a dividend cut up to BP. It may not be politically pleasing but decisions on company operations should be left up to company management. It would make sense if the government forced BP to suspend its dividend because the company took a government bailout. But that is not the case at this time.
2) The dividend is one of the only reasons left to own the stock. Shares have dropped almost 50% and are having trouble staying above $30 now. A massive selloff would likely take place if the dividend is eliminated.
3) The dividend has no effect on BP’s ability to clean up the oil spill. Regardless of whether or not BP cuts its dividend, the Gulf oil spill will not be cleaned up any faster.
Final Thoughts
I don’t believe that it is the government’s place to interfere with the operations of a company that it has no financial stake in. BP will have a hard enough time trying to remain a stand alone entity after the gulf spill crisis is over. If the dividend is eliminated, I think that the majority of investors will jump ship.
Photo by: futureatlas.com
Unfortunately for BP, they are responsible for oil spill and need to reserve capital to pay. They really should cut the dividend, but knowing how big business operates, my bet is that they will pay out the dividend now, and worry about paying for oil crisis later.
@Renee
Excellent points!
I don’t question BP’s responsibility for the spill and their paying for the cleanup; I think they are absolutely on the hook for the cleanup costs. but, it is none of the government’s business what a company does with its money. If we want to follow the logic of the governemnt telling BP they should not pay their dividend because of the oil spill, perhaps we should insist that President Obama and all members of the Congress give up part of their salaries because there is a deficit?
@Garthman
LOL. Very good point Garthman! Congress wouldn’t do it.
@Garthman
I agree. Let congress actually try to understand.
Is there any standardized way, how to prevent BP from paying the dividend, or is it more just Obama administration trying to please the crowds? However, after some time, when this disaster will be forgotten (as Exxon Valdez was forgotten) BP shares will go up again. The need for capital will be crucial now and in the few upcoming years, so maybe keeping the cash and risking share price plunge would be more favourable…
@Jay B.
Jay,
I agree that BP could slash the dividend and it should be their decision. I think that the government is pandering to the crowd. I have not sold my BP shares for that very reason.
The government doesn’t have ANY rights. PEOPLE have rights. Governments are instituted to protect those rights.