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Poll: Politics Will Force BP Dividend Cut

BP will likely cut its dividend as a result of political fallout from the Gulf of Mexico oil spill, according to a reader poll.



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dividend cut seems likely, according to participants in a recent reader-opinion poll conducted by


-- though speculation of an impending takeover or bankruptcy remains hyperbole, readers say.

On Monday morning, a BP spokesman said that a decision would not immediately be made on the dividend cut, adding uncertainty to the fate of the hefty shareholder payout.

In the latest anonymously sourced report on the BP dividend unrest, the

New York Times

on Monday morning quoted a "person with direct knowledge of the BP board" as saying that there are three options for BP: suspending payment of the dividend for two quarters, paying the dividend in bonus shares, or escrowing the amount of the dividend and continuing to use cash generated from operations to cover oil-spill costs.

The news comes after a busy weekend. The Obama adminstration, reacting to indications that BP might not move as swiftly as the White House had hoped to cut the dividend, said it was considering legal options to force BP to place billions of dollars in a reserve fund to cover oil-spill liabilities.

On Friday, BP CEO Tony Hayward's comments to the

Wall Street Journal

and a flood of anonymous leaks to the British press suggested that BP is preparing shareholders for a suspension of its dividend as early as Monday.

BP's top brass are set to meet with the Obama administration at the White House on Wednesday; BP likely doesn't want to go public with a decision ahead of that critical face-to-face meeting.

Anonymous comments in the U.K. media from BP sources last Friday seemed aimed at softening the blow of a dividend reduction, since those sources also floated the idea that BP planned to create a kind of IOU for investors. Once BP is able to quantify total oil-spill costs and damages -- or at least is no longer bound by the anti-BP dividend political rhetoric -- shareholders will reportedly receive their promised payout.


Times of London

got the dividend talk going in its Friday editions -- though the BP dividend cut has been a major market story since last week -- with anonymous comments about the BP dividend IOU plan.

Then, on Friday afternoon, the


made the most definitive statement on the BP dividend issue, saying that company's board would meet on Monday to approve the suspension of the dividend. But the company won't likely announce the decision, the BBC reported, citing anonymous sources, until after the highly anticipated meeting between BP top brass and President Obama on Wednesday. The BBC would later backtrack slightly from the "definitive" nature of its report.

The only official words from BP about the dividend last week came from Hayward's comments to the


, but his words were vague. The CEO allowed only that BP was exploring all its options regarding the dividend.

One thing was certain: the political heat over BP's proposed shareholder dividend continues. The White House has sayid it had no plans to block the payout, but it keeps the pressure on. In fact, the White House may have no legal means of blocking the payout. This might be why over the weekend, the talk from the administration turned to a more general legal strategy of forcing BP to place billions of dollars into a reserve fund.

On Capitol Hill, the message on dividends was slightly different from at the White House, with House Speaker Nancy Pelosi (D-Calif.) saying small business claims in the Gulf coast region should come before the dividend, and Representative Ed Markey (D-Mass.), a primary Capitol Hill thorn in the side of BP, indicating the government would block the BP dividend, if necessary.

On Thursday, in a less guarded statement than that offered by Hayward, Oppenheimer & Co. analyst Fadel Gheit, not one to mince words, said in a research note that the federal government's attacks on the BP dividend were ill-advised, not to mention unenforceable.

But, others say, the federal government need only apply pressure on BP until the company can't help but suspend the dividend as a way to squelch the outrage within the court of public opinion. It is a high stakes game of political poker, and the White House may be hoping that BP bows to the pressure without forcing the issue and making it a legal one.

The linking of the hefty BP dividend to the massive economic damage in the Gulf Coast region -- Obama referred to it as the "nickel-and-diming" of Gulf residents -- has helped force the petroleum giant into speeding up its payment of damage claims to Gulf residents and businesses.

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For its second-quarter dividend, BP is theoretically set to distribute roughly $2.5 billion on July 27 out of a projected 2010 total of $10.5 billion. That's far from "nickle-and-diming" BP shareholders.

The BP dividend is a big issue for investors. In the U.K., many large mutual funds depend on BP for a significant portion of their dividend income streams.

The BP dividend is the largest income generator among dividend stocks in the FTSE 100 Index.

With all this in mind, we asked readers of


last week:

Will BP end up slashing its dividend?

Poll results reflect every aspect of the contentious BP-dividend issue.

We didn't just ask readers if the payout would be reduced. Rather, we asked if political pressure or financial strain would be the primary mover behind any decision by the petroleum giant.

Only 15% of survey takers were willing to go out on a limb and simply say that BP would not be forced to cut its dividend.

Meanwhile, 22% of survey takers said that the political pressure was too great for BP to avoid a dividend cut. That was the second-most popular response.

Fourteen percent of survey respondents simply said that BP will be forced to cut its upcoming dividend.

When it came to the issue of BP's financial position, survey responses reflected the general consensus that the dividend cut is wholly a political animal. Only 4% of survey takers think that financial strain on BP will force a dividend cut.

The most popular choice in our poll -- that BP has the balance sheet strength to avoid a dividend cut -- received 23% of the votes.

The third-most popular choice, at 21%, was that BP will cut its dividend, but not by a significant amount.

By Friday, the latest market chatter focused on the idea that the BP board was leaning toward some kind of delay in its dividend payment, creating an IOU for shareholders.

Taking them all together, survey takers who said that political pressure would force at least some kind of dividend reduction accounted for 57% of all poll responses.

Yet, clearly, investors also continue to believe BP that it has the balance sheet strength to pay its hefty dividend.

-- Reported by Eric Rosenbaum in New York.


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