.
The Deepwater Horizon oil catastrophe may soon start to effects of the oil leak spilling over onto the world economy.  Before this happens, though, BP share prices are going to continue to decline and the valuations of most Brits’ pension funds are going to drop, since BP comprises a majority holding in most UK indexes.

BP plc (ADR) (NYSE: BP) now trades around $42.91 in after hours trading on Friday, but I’m betting we will see it drop come market open on Monday now that Top Kill has failed and both junk shot attempts have failed.  This is its second-lowest point over the last five years – the lowest, of course, occurring during the financial crisis sell-off.

If you’re really optimistic on BP turnaround prospects, you’ll want to keep an eye out on Monday and Tuesday (when all markets are open again), but you still might want to wait to see how much worse the oil spill can get before picking up some BP shares on sale.  Or if you’re sophisticated, you might want to short BP – as I am sure the situation is going to continue to worsen both for the Gulf and for BP.  Can anyone reasonably doubt that?

Is Deepwater the Trigger for the Double-Dip?

Will BP Cut Its Dividend?

.
A good indicator for judging how safe a company’s dividend is, now, to simply look back at what happened to the stock throughout the 2008-2009 financial crisis.   It took a good two weeks for BP to fall from $54 on Sept. 19 down to $40-something by October 10, 2008.  Then, on March 06 2009, along with many other companies, it plummeted back further down to $35 (that was just after the end of the world, remember?).

I’m not sure whether we should be surprised or satisfied that the current ADR price is only $2.00 above where it sat right after the Lehman crash.  At the time, that crash had nothing to do with BP at all.  The oil spill does, yet BP still trades higher.  Do you think this is a fair valuation?  I expect this is why BP’s share price still has more downside.

BP did not cut its dividend at all throughout the crisis, which is uplifting news.  It did not raise it either.  But do you not think this might be a worse storm for BP than the financial-led crisis was?  I do.  Other journalists have already started suggesting that BP needs to cut back, which may include suspending its dividend.

At 84 cents per ADR, that would be a significant loss of income for income investors and those trying to live off of it via pensions.

Bonuses for executives might have to be cut too, which I spoke about earlier today in relation to the economic effects of the oil spill.

If you found this article useful, please retweet it on Twitter or stumble it on StumbleUpon.  I’d also love it if you subscribe to my RSS feed for free tips and posts like this one delivered right to your reader or by email (posts are not for duplication).

• Is the Stock Market Open On Columbus Day?
• Canadian Dividend Stocks
• Outlook for Canadian Stocks in 2010
• Peter Schiff's Favorite Canadian Oil Stock Recommendation
• This Downturn Maybe Not the Real Big One: My Top 5 Stock Picks for Making it Through 2015-2030

• Food Costs Compared
• Different Types of Stock Markets
• Buffett Hates The Dollar Too!
• How Pensioners Can Beat the Tax Man by Saving with ISAs
• Dividend Growth Stocks: Having Your Cake and Eating it, Too

Tagged as: ADRs, bearish, BP, dividend, dividend cut, energy, environment, Gulf of Mexico, oil, oil spill, oil stocks, share price, shares, short, stock markets, stocks, trading, UK