Investors pay heavy price in BP fallout

INVESTORS have been warned to expect a £10 billion dividend drop over 2010 as the suspension of BP's payout decimates FTSE 100 dividends.

The FTSE 100 cut payouts by 8.3 per cent to 25.2bn in the first half of the year, according to the latest Capita Registrars Dividend Monitor, reflecting the initial impact of the BP cut.

BP announced last month that it was cancelling its 2010 dividend because of the mounting costs arising from the Gulf of Mexico oil spill. But with BP typically accounting for about 1 in every 7 of annual FTSE 100 dividend payouts, the loss of this year's payout has put a massive dent in overall dividend expectations.

More than 40 per cent of dividends in the three months to the end of June were paid by just five companies - Shell, British American Tobacco, HSBC, GlaxoSmithKline and Standard Chartered. However, 39 more UK companies paid a dividend in the first half of the year than in the same period in 2009. The number of companies increasing or reinstating dividends increased to 189, double the number who reduced or cancelled them.

Paul Taylor, head of dividends at Capita Registrars, said 2010 would prove another tough year for income investors. "The huge concentration of the UK market into a few big stocks has made investors uncomfortably reliant on very few sources for the bulk of their income," he said.

"The top 15 paid two-thirds of dividends in the first half, so investors are, as we have witnessed, vulnerable to a one-off shock from any of these companies."

Income investors had more joy from mid-cap companies, with FTSE 250 firms increasing dividend payouts by 24 per cent in the first half of the year. However, the total dividend of 5.3bn paid out by FTSE 250 stocks was less than the cancelled BP payout of 5.4bn over nine months. In all, Capita predicts shareholders will receive 54.7bn from British firms over 2010, down 6.5 per cent from 2009 and 19 per cent lower than in 2008.