Pension funds are counting the cost of the BP oil spill as its share price has tumbled and fears are raised over dividend payments.
There was fresh bad news for BP today after shares in the company tanked 15% in morning trading. Its share price is now down 27% over the past month.
BP is a key stock for pension funds, and it is suggested that it accounts for one in every six pension pounds invested.
Funds have traditionally chosen BP because its shares were seen as a relatively 'safe' bet in the long-run, gaining solidly each year and most importantly providing a regular and robust dividend.
But the crisis in the Gulf of Mexico has dramatically changed that outlook.
With oil spill problems set to rumble on, many expect BP shares to tumble further, wiping huge chunks from retirement savers' pots. And the big fear for pension funds ongoing performance is that BP may not be able to sustain its high dividend payments, with the shares currently yielding more than 7.5%.
Pension funds typically target stable dividend paying stocks such as BP, but their choice is limited. Capita Registrars dividend monitor report showed the top five best payers in 2009 accounted for 47% of all dividends paid that year. BP is a major player in that top five, along with Shell, HSBC Vodafone and GlaxoSmithKline.
The news is particularly bad for savers nearing retirement, but who have opted to remain invested in the stock market, rather than moving into low risk assets, such as cash or gilts, to secure their pots. BP's position as a sizeable chunk of pension scheme holdings will have dragged their investment down with little time left to recoup losses.
BP' stock had fallen 73.95p to 420.85p by 12.45pm today after its latest attempt to stem the major oil spill in the Gulf of Mexico failed. The blue-chip heavyweight had opened 15% down - wiping £14bn from its market value - as investors worried that it may take until August to resolve the crisis.
The financial cost of tackling the spill, the worst in US history, now stands at $990m, as BP prepares for a new attempt to control the flow of oil this week.
The latest news will intensify doubts about BP's ability to pay a dividend this year - of vital importance because pension funds bank on this income.
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