2 Numbers That Could Make BP plc A Spectacular Buy

Royston Wild explains why BP plc (LON: BP) could be a lucrative portfolio filler after all.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at why I believe BP (LSE: BP) (NYSE: BP.US) could prove a canny contrarian pick.

Here are two numbers that I think help make the case.

14 billion

Investing in the oil sector remains a territory only for the brave. A backcloth of surging global production — thanks in large part to US shale output — continues to weigh down the black gold price, exacerbated by signs of slowing activity on the world’s factory floor of China and fears of another fiscal catastrophe in Europe.

For BP and its major rivals, these concerns — combined with the need to boost the balance sheet after the 2008/2009 financial crisis smashed earnings — have prompted a series of widescale asset sales in a bid to de-risk their operations.

BP spun off $38bn in 2012 alone, and late last year announced plans to sell $10bn worth of projects by the end of 2015. Since then the oil giant has bumped this target by an extra $4bn, taking the total to a colossal $14bn.

Not only are these moves prudent given the continued deterioration in the oil price — WTI crude fell to $75 for the first time since the turn of the decade this week — as well as the effect of rising exploration and refining costs, but BP is also having to boost its cash reserves given the uncertainty surrounding how much it will have to fork out as compensation for the Deepwater Horizon spill in 2010.

5.7

Despite an environment of severe revenues pressure, BP continues to offer dividend yields which few other blue-chip companies can match.

Boosted by the vast inflows generated by the divestments mentioned above, BP is also curtailing the amount of capital expenditure it forks out owing to its more focussed asset portfolio, in turn bumping up the payouts it can shell out to shareholders.

As a result BP is anticipated to churn out a total dividend of 39.2 US cents per share, according to broker consensus, up a chunky 6% from 2013 levels. And this is anticipated to advance an additional 3.6% in 2015 to 40.6 cents.

Consequently the company offers a stonking dividend yield of 5.7% this year, destroying a forward average of 3.4% for the FTSE 100 as well as a corresponding readout of 4.1% for the rest of the oil and gas producers sector. And this moves to an even more impressive 5.9% for 2015.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »