This is a rush transcript from "Your World With Neil Cavuto," June 9, 2010. This copy may not be in its final form and may be updated.
NEIL CAVUTO, ANCHOR: All right, a live look at all that oil that continues to spill and spill and spill, now Congress ramping up the slamming. More than 40 Democratic congressmen are demanding BP end its dividends and stop advertising. A dividend is a premium shareholders of each share of stock.
My guest is leading that charge, Democratic Congressman Peter Welch of Vermont joining me right now.
Congressman, as you’re leading this charge, as you know, BP’s stock is collapsing. And say what you will of the company, that — that is the currency with which it will be paying a lot of these bills that are — and damages that are coming its way, including the cleanup.
So, are you killing the goose that pays the bills?
REP. PETER WELCH D-VT.: Well, no.
I mean, as every CEO like Warren Buffett knows, a corporation pays dividends after its meets its corporate obligations. BP, through Mr. Hayward, has acknowledged that they have a big obligation. And that’s to pay the cost of the cleanup. That’s the law. That’s the commitment they have made.
And the issue here is, will they have the money, and should they be diverting reserves to dividend payments, when they have an unfunded liability that could reach $37 billion? So, bottom line, they have got to attend to business first, cap the well, be able to compensate the victims in the Gulf Coast, and do everything possible to protect the wildlife.
CAVUTO: Understand, sir.
But you know how dividends work. They are a penny for investors in order to keep them as investors, in order to keep them as shareholders. For example, a lot of folks who invest in companies that offer dividends do almost exclusively because they’re getting dividends. It’s like income for them.
CAVUTO: A lot of elderly, a lot of conservative investors do that.
You take the dividend away, Congressman, you take the shareholders away for a lot of them, and the stock collapses. We saw it collapse again today, the lowest level it’s seen since, what, 1997.
So, what I’m saying, looking at this, well, you are killing the wallet that you want to see fund this.
WELCH: Well, the market’s got its own will about the stock, and it’s speaking.
But, bottom line, dividends are paid from what is left over after excess profits. What — the company makes a decision about what they want to reinvest in and what they want to pay out as a dividend, but they don’t do that until they have met their current obligations. That’s the responsibility of a CEO.
Incidentally, I think that BP would be...
CAVUTO: By the way, that’s not — that’s not — that’s not true.
CAVUTO: Companies — no, no, part of companies’ expenses and part of the way they think going forward is that this dividend is a valid — a valid issue for us.
CAVUTO: We think it’s a valid incentive to keep people investing in our company, investing in our stock. Take it away, fewer people do. It’s no mystery.
WELCH: Well, you’re right.
CAVUTO: But, Congressman, Congressman, this is why fewer people are investing today, and particularly today. And one of the big reasons — you’re right — all this calamity has been one of the big reasons why the stock has been halved...
CAVUTO: ... since we had the disaster.
My point is, you’re pushing them over the cliff. I’m not an apologist for BP. You’re quite right.
CAVUTO: They’re to blame for this. They have got to address this.
But I’m just telling you, you push them over the edge, you de-incentivize investors who might otherwise look the other way when it comes to being shareholders of BP, it’s the U.S. taxpayer who is going to be footing the bill for this cleanup, because that company will go out of business.
WELCH: If a company doesn’t have profits, it can’t pay its dividends. And profits are determined after it meets its obligations. It’s a judgment call that has to...
CAVUTO: Congressman, you’re not hearing me.
WELCH: No, I am hearing you.
CAVUTO: No, no, you’re not, because, you keep doing this, you are going to take the investors away, the shareholders away, the incentive to buy away. And that is going to bring BP to the brink. I don’t know whether this single-handedly does it, but there will be a — a time and a place and a moment when people sitting around the board table at BP...
WELCH: All right.
WELCH: Let me — let me respond.
CAVUTO: Listen, listen, because I think you need an economics lesson here.
CAVUTO: They’re going to say, Congressman, no mas, we give up. That’s it. We are done.
And now the U.S. taxpayer, your constituents, are going to be paying for the cleanup you’re trying to stick to BP.
WELCH: Neil, any corporation that wants to pay dividends has to have the reserves to pay those. And those reserves are what they have left over after they have met all of their obligations.
CAVUTO: All right.
WELCH: And situations for companies change. Our banks cut dividends when they had the bank crisis. Now they’re starting to re — now they’re starting to be repaying those dividends.
CAVUTO: Sir, have you heard of being penny-wise and pound-foolish here?
CAVUTO: Have you heard of being penny-wise and pound...
WELCH: And that’s — yes, it’s called BP.
CAVUTO: I want you to look at the pennies who you’re affecting. You’re — you’re — you’re...
WELCH: This is a $10 billion annual dividend. BP has spent a billion already. There’s 40,000 — 40 million gallons of crude in the oil in the Gulf.
CAVUTO: You’re talking teachers. You are talking Texas state workers. You’re talking public school employees in Pennsylvania. You are talking public workers in California. You are talking the Division of Investment workers in the state of New Jersey.
What I’m saying...
WELCH: You’re talking about taxpayers. You’re talking taxpayers who have got a huge — who are going to get left holding the tab. You’ve got a company that is subject to...
CAVUTO: Congressman, you’re going to leave them holding the bag if you push them into the water.
I’m not excusing BP. I’m just...
WELCH: You know, BP cannot pay a dividend if it doesn’t have the money.
CAVUTO: You know what? It’s like I’m...
WELCH: If it has the obligation, what’s the priority?
CAVUTO: No offense. I’m talking to a rock here.
WELCH: Is the priority...
CAVUTO: All right, we’re done.
Congressman, thank you very much.
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