City File: To cut or not to cut?

WILL British Petroleum cut its dividend or not? The moment of truth comes for shareholders on Thursday, when the company announces second-quarter results. The stock market is betting that it will cut. A reduction of up to 50 per cent is discounted in the share price of 214p. James Capel is going for a cut of 40 per cent, giving a second-quarter payout of 2.5p, or 11.7p for the year.

The dividend was the issue over which Bob Horton, the previous chairman, recently lost his job. It is likely that David Simon, who took over as chief executive, will use his prerogative as the new broom to change policy, despite his past statements on the importance of not cutting the dividend. For the same reason, the profits are hard to predict, because Mr Simon will write down everything he can to clear out the accounts.

There is a chance that BP will maintain the dividend. If it does, the shares may jump initially as income funds pile in. But unless there are clear signs of economic recovery in the next few months, the long-term reaction will be negative.