OMGI's Message: Why the oil price is ultimately a 'self-correcting' mechanism

A number of commentators correctly highlighted at the start of the year that dividends were at risk in the resources area of the UK equity market, writes Stephen Message, manager of the Old Mutual UK Equity Income fund.

Subsequently, mining majors BHP Billiton and Rio Tinto both effectively cut their dividends, moving away from a policy of paying progressive dividends to one where dividends would be more aligned to profits and based on payout ratios. This policy is not without merit, as it allows both companies to pay greater dividends in an environment where commodity prices are strong while also creating enough flexibility for when prices fall. Interestingly, following the announcement of their dividend cuts, the share price performance of both companies improved. While this can, in part, be attrib...