Investors back BP dividend resumption despite payout drop

Pension funds, life offices and equity managers have welcomed BP's reinstatement of dividends after a nine month drought, despite payouts being half pre-spill levels.

Although the oil giant today reported its first loss since 1992, of £3.1bn for 2010, it pleased income investors with the news it will resume paying dividends at 4.34p (seven cents) per share.

This includes the UK's pension funds which before the Gulf of Mexico spill were investing one in every six pounds into BP.

However, although total reinstated dividends of £776m will only be half what BP paid out to shareholders in Q4 2009, pension funds and income investors are positive about BP's decision.

David Paterson, head of corporate governance at the NAPF, says: "Pension funds invest for the very long-term, and they are spread across many asset classes and companies.

"BP accounts for around 1.5% of a typical pension fund portfolio and shareholders will welcome the resumption of dividends."

Richard Hunter, head of UK equities at Hargreaves Lansdown, says:"BP is hedging its bets due to impending litigation, which means it has less to pay out in dividends. However, investors are very aware of interest rates and what will pay out well, and so overall BP's reinstatement of dividends is positive."

Graham Ashby, head of UK equities at LV= Asset Management, adds: "We welcome the decision by BP to pay a dividend of seven cents per share, which we believe is affordable on an ongoing basis.

"The reinstatement of the dividend, all be it at a reduced level, is an important outcome for income-seeking investors as BP is a top ten dividend payer in the UK equity market.

"We remain of the opinion that shares in BP are attractively rated compared with the replacement cost of their assets and their large integrated peers, although we have a preference over the longer-term in higher cash flow returning businesses such as Petrofac and BG Group."

Michael Clark, manager of Fidelity's Income Plus fund, says: "It is of course welcome that BP has restored its dividend. The level is lower than before the Macondo crisis, and BP now yields about 4.5%. This yield is higher than the general level of the UK market, which is currently about 3.2%, but much lower than many other equity yields.

"There are currently some very significant, safe and growing yields available on large companies in the UK market. Good examples are GlaxoSmithKline, which yields nearly 6%, Astra Zeneca 5.5%, National Grid 6.5%, BAT 5.5% and Scottish and Southern Energy 6.4%. So we believe that the London equity market offers good income generation opportunities to investors at its current level."