The inevitable has happened and BP have announced that they will not be paying a dividend this year. While this may be bad news for existing investors does the company’s fall from grace, and the resulting share price slump, mean it’s a good time to buy BP shares?
There will no doubt be many headlines written about how the cancellation of this year’s dividend will hammer pension funds in the UK (previously BP claimed that it pays £1 in every £7 of dividends that pension funds receive from FTSE 100 companies). However, while pension and invest funds will be negatively affected by today’s announcement the truth is slightly less dramatic than the media will have you believe - as shown in our article ‘’How the BP share slump affects your investments/pensions and who is most affected’’.
But it does raise the interesting question as to whether now is a good time to buy BP shares. Moneyweek is a weekly investment magazine which I’d recommend anyone read (although like most investment Bears they seldom admit when they’ve got it wrong) and today their editor John Stepek has penned an article titled ‘Is it time to buy BP?’
To sum up, his view is that:
- BP is not on the verge of going bankrupt.
- The share is now more of a speculative investment rather than a core holding.
- There’s a lot that could still go wrong for BP despite them announcing the creation of a $20bn compensation fund. For starters oil is still pumping out into the Gulf of Mexico and the lawyers are sharpening their knives in the wings.
And on that last point, the $20bn compensation to help ‘the little people’ could well be a drop in the ocean once the final bill is totalled up – unlike the ever growing oil slick itself.
John Stepek’s full article can be found here.
(another related article that may be of interest : 3 quick links – the problems facing BP, its future outlook and what you should do about BP shares)
UPDATE 25/6/10: read our latest post - More bad news for BP shareholders following hurricane concerns