BP scraps dividends for rest of year

BP will not pay dividends for the remainder of the year as it has to put $20bn (£13.5bn) in a compensation fund for victims of the Gulf oil spill.

The oil giant was due to make a $2.6bn dividend payment on Monday, which has now been cancelled.

Its move will be a huge blow for investors in the UK, especially millions of people in pension funds and equity income vehicles.

BP dividends account for around £1 in every £7 of share payouts from UK blue-chip firms and have not been slashed since 1992. The last time that BP suspended a dividend payment was during World War II.

Barack Obama announced the compensation deal after talks at the White House with senior BP executives. Shortly afterwards, BP chairman Carl-Henric Svanberg said dividends would not be paid for the rest of this year.

Although BP has agreed to fund $20bn - roughly equivalent to one year of BP's annual profits - this does not include any punishment the oil giant might face from the US authorities.

"Notwithstanding BP's strong financial and asset position, the current circumstances require the board to be prudent," BP says.

"It has therefore decided to cancel the previously declared first quarter dividend scheduled for payment on 21st June, and that no interim dividends will be declared in respect of the second and third quarters of 2010."

BP says it remains strongly committed to the payment of future dividends and delivering long-term value to shareholders.

"The board will consider resumption of dividend payments in 2011 at the time of issuance of the fourth quarter 2010 results, by which time it expects to have a clearer picture of the longer term impact of the Deepwater Horizon incident," it adds.

"The board believes that it is right and prudent to take a conservative financial position given the current uncertainty over the extent and timing of costs and liabilities relating to the spill.

"BP's businesses continue to perform well, with cash flows from operations expected to exceed $30bn in 2010 at current prices and margins before taking into consideration costs related to the Deepwater Horizon spill."