BP will make $10 billion in profit payouts despite spill

CEO: BP will make good on $10 billion in profit payouts to shareholders, despite spill

By John Byrne
Friday, June 4th, 2010 -- 9:28 am
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bp CEO: BP will make good on $10 billion in profit payouts to shareholders, despite spill

BP's shareholders may receive more this year from the company's coffers than those affected by the spill in the Gulf of Mexico will receive in their lifetime.

BP CEO Tony Hayward has indicated that he will go ahead with massive dividend payouts to shareholders in the aftermath of the worst oil spill in US history. $10 billion in payouts are scheduled for this year. The cost of the spill has been estimated in the tens of billions, but ExxonMobil only ended up paying a $507 million settlement for the 1994 Exxon Valdez spill after 20 years of appeals.

BP's dividend ratio is now at 7.4 percent per year, more than twice the average payout of companies listed in the S&P 500. This means that US investors who hold BP stock effectively earn 7.4% interest on their shares -- more when US tax law is taken into account -- in addition to any gains or losses as a result of price shifts in the stock's value.

Democratic senators Charles Schumer (D-NY) and Ron Wyden (D-OR) wrote to BP's CEO on Wednesday asking them to delay dividend payments until a reasonable estimate can be reached for the cost of the spill's cleanup.

“We find it unfathomable that BP would pay out a dividend to shareholders before the total cost of BP’s oil spill clean-up is estimated,” the senators wrote.

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“While we understand the need to reassure shareholders that the disaster in the Gulf will not substantially impact BP’s long term financial health, we are concerned that such action to move money off of the company’s books and into investors pockets will make it much more difficult to repay the U.S. government and American communities that are working around the clock to stem the damage caused by this devastating oil spill,” they added.

On the opposing side are some British cities and British pension funds, which depend on dividends like BP to pay retirees.

"BP's dividend is of crucial importance to the City and to the pensions of millions who depend on payouts from profitable companies to boost their retirement funds," the Guardian noted Friday. "Together with rival Shell, BP accounted for 25% of the total dividends of £50bn paid in the UK market last year. Any cut in the dividend could result in investors selling BP shares, further weakening the company, which has lost nearly 30% of its value since the disaster began."

If BP cuts its dividend, its share price would almost certainly fall further. The company has lost nearly 30% of its market value since the spill occurred Apr. 20. The decline has shaved tens of billions of the firm's market capitalization.

As of Friday morning, BP shares traded slightly higher in premarket trading on news that Hayward planned to keep the dividend intact.

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