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The BP (LSE: BP.) share price is finally showing signs of life, climbing 20% in the last three months. Let’s not get carried away though. At today’s (28 August) price of 428.4p it’s simply back to where it stood 12 months ago. Although given the tormented year it’s endured, investors might be happy with that.
FTSE 100 dividend opportunity
The FTSE 100 oil giant embarrassed itself by doing a sharp public U-turn on its green strategy, drawing fire from both sides of the climate change debate. Activist investors have circled and they’re not happy (when are they?). CEO Murray Auchincloss faces constant pressure to prove himself.
No doubt all would be forgiven if the oil price was rocketing, but it isn’t. Brent crude recently hit a month high of $68.80 per barrel, but it’s since retreated to $66.80%. That’s around 13% lower than last year’s $76.80.
Cheaper oil means lower profits. On 6 February, BP reported full-year 2024 underlying replacement cost profit of $8.9bn, sharply down from $15.2bn in 2023.
Despite all these problems – or rather because of them – I bought BP shares in September and November last year. I like to target troubled companies on the basis that someone will eventually get a grip. It often takes a crisis to force tough action, and when it comes, the market tends to react quickly rather than waiting until the turnaround is obvious. We’re not at that point yet.
Profits beat forecasts
Q2 results (5 August) gave BP a lift as underlying profit came in at $2.35bn. That was down from $2.76bn last year but beating forecasts of $1.81bn. The dividend was hiked 4% to 8.32 cents and the share buyback held steady at $750m. That’s down from $1.75bn in the final quarter of 2024, but was enough to reassure the market.
Berenberg upgraded BP to Buy from Hold and hiked its target to 500p, citing stronger free cash flow and progress on cost-cutting. Investors also liked the news of the Bumerangue oil discovery in Brazil, its biggest find in 25 years.
I no longer see BP as the reliable core holding it was in the 1990s. Its price-to-earnings ratio is out of sight at 243, more than 16 times above the long-term FTSE 100 average of 15.
Income growth play
The big plus is the dividend, now yielding 5.65% on a trailing basis. Payouts were cut hard in 2020 but have since climbed, with hikes of 11.33% in 2022, then 18.02% in 2023 and 10.03% in 2024. Forecasts suggest only modest growth ahead, with the yield creeping to 5.68% in 2025 and 5.9% in 2026.
Consensus forecasts point to 9% share price growth this year, taking it to 467.2p. Adding the dividend would give investors a total return close to 15%,
BP is a stock that investors might consider buying, but only if they accept the risks. I can see safer growth prospects across the FTSE 100, and higher income plays. I’m holding my shares for now but with modest expectations. I still think BP could go either way.
