Motley Fool Money is a one-hour weekly business radio show hosted by Chris Hill, featuring Motley Fool analysts James Early, Seth Jayson, and Shannon Zimmerman. Each show includes a fast-paced roundtable discussion of the week's top investing stories, interviews with business leaders and authors, and specific stock ideas. Here's an edited transcript from our most recent Motley Fool Money Radio Show, where we discuss BP as an investment, and the fate of its dividend.
Chris: Seth Jayson, you're a BP
Seth: I'm still looking for more buying opportunities. I think the biggest news for BP this week is that the government really ratcheted up its pressure on BP -- at one point sort of threatening to try to charge BP for the economic impact that is going on in the Gulf because of the moratorium declared by the government.
Right now, this is really a political nightmare, as well as an environmental nightmare, and so as a shareholder who is there partially for the dividend, I actually think BP would do well to cave slightly to all this political pressure just to make it a little easier for them to show that they are feeling everyone's pain, and hopefully sort of push away some of the more egregious legislation that could otherwise be coming their way.
Chris: James Early, you're the dividend guy. What do you think BP should do with the dividend?
James: Well, you know, I love dividends, but I think in BP's case, they have so many big worries, and the main thing is they're facing political risk…. And that's the hardest risk to predict. And so I think they're prudent to not pay a dividend. Word on the street is that they're going to suspend the dividend for now, possibly putting the money in an escrow account for later, or maybe do an IOU.
Chris: But Shannon, a lot of pension funds hold BP. You got the Texas Teachers' Retirement System, The California Public Employees' Retirement System; over in the U.K., shares of BP are even more widely held than they are here. Not paying the dividend? That's going to be hurting retired librarians.
Shannon: Exactly right, and a lot of retail mutual funds here in the U.S. own BP shares too, of course; about 520 mutual funds own the company. And these are funds that have particular mandates. They are mandated to own dividend paying stocks. So if that gets suspended, do they liquidate their position in BP? And what will that do in terms of the ripple effect? In some respects, it could be a self-fulfilling prophecy, or maybe bankruptcy is a possibility. Maybe it's not. Maybe the share price gets cut down to $10 or less. Funds have mandates around the market cap that they are to invest in as well, so there can be some things on the fundamentals that could erode BP's position.
Seth Jayson: Yeah, this is one of those cases where everybody has to be careful what they're asking for, because if you kill BP, then there's nobody left to pay for all of this cleanup. And you're not going to be able to sell the assets to anyone with the condition that they then fund the cleanup. So this is one of those things where if you want to hammer on them, yes, its politically expedient. You definitely want BP to pay as much as they can to fix this mess. But BP is worth a lot more alive than it is dead.
You can hear more on The Motley Fool Money Radio Show. New shows get uploaded every Friday at 6 p.m.
Seth Jayson, James Early, Shannon Zimmerman, and Chris Hill may own stocks discussed during the course of the weekly radio show. To see the stocks they own, view their profile pages, linked here: Seth, James, Shannon, and Chris.
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