Confidence in BP dividends still high

BP’s share price has fallen by 25% over one month as it tries to contain the spill off the Gulf of Mexico. City analysts have warned shareholder payouts on BP stock account for around 17% of UK schemes’ total dividend income.

But Alan Brown, chief investment officer at top 10 UK pension fund manager Schroders, managing £18.8bn worth of UK pension scheme assets, told PW he remained optimistic the firm will continue to pay dividends.

He claimed BP would still be able to afford the payments if oil prices remain stable at around $75 (£51) a barrel, which Schroders’ commodity analysts believe will be the case.

The news will come as a relief to pension schemes, who have lost an average of 1% of their assets on BP’s plummeting share price, as it struggles to meet an estimated £21bn of costs from the disaster, including clean-up and third-party litigation.

“If our assumptions with oil prices are borne out, we don’t think BP will alter its dividend,” he said.

“But if the price were to drop significantly, that would certainly raise the probability of the need to cut dividends.”

Meanwhile, the UK head of equities at another major asset manager and corporate governance specialist said he too did not believe BP stock would reduce or go ex-dividend, despite the uncertainty surrounding it.

He warned the market for derivatives aimed at mitigating loss of income from the stocks indicated a cut is forthcoming, but added: “I wouldn’t bet that strongly just yet. They will have plans for multiple scenarios already in place.”

Richard McIndoe, head of pensions at Strathclyde Pension Fund, said his scheme would not suffer a “significant impact” as BP was not in its top 20 holdings.