Yesterday, embattled oil giant BP (NYSE: BP ) announced that it had agreed to contribute $20 billion into an escrow account to pay legitimate claims arising from the Gulf of Mexico oil spill. This is the right and honorable thing to do.
What is not right and honorable is the concurrent announcement that the company is also suspending its dividend and, especially, canceling the previously announced dividend, which was to be paid later this month.
As a holder of common stock, there are only two ways for me to make money: Hold while the price of the stock rises and then sell, or hold and receive dividend payments. The risk I take as a shareholder is that the share price will decline, or that the company will cut or halt its dividend.
Well, right now, I'm sitting on a 45% loss on the shares, which I bought before the disaster struck. I'm not complaining about that; it's part of the game, after all. And the halting, or at least reducing, of the dividend was in the cards as soon as the rig blew up. That's OK, too ... mostly. (Though maybe I should reallocate my holding to Big Oil competitor ConocoPhillips (NYSE: COP ) . It's paying 4%.)
No, what really ticks me off is that BP's obligation isn't just to the people affected by the spill; it's also to its owners. By taking this action, the board is, essentially, putting the screws to us. People like me and the thousands of others who rely on dividend payments as part of their income.
I can understand the reasoning behind the move. Paying out a dividend in the middle of this disaster does not spin well in the media. But let me tell you, Chairman Svanberg, it also doesn't spin well with the company's owners, the people you are supposed to represent. After all, ExxonMobil (NYSE: XOM ) didn't scrap its dividend during the Valdez situation.
By canceling the already-promised payment -- a promise made a week after the rig blew up -- BP is breaking faith with us.
Pay the June 21 dividend, BP. Then suspend the dividend if you have to. That would be the right and honorable way to proceed.