Why BP plc Should Be A Candidate For Your 2014 ISA

BP plc (LON: BP) will still be going strong in another 20 years.

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BPIf any company can be said to have had a tough time in recent years, it’s BP (LSE: BP) (NYSE: BP.US).

Something like the Gulf of Mexico disaster — the biggest offshore oil spill in US history — is just about the worst fear an investor in the oil & gas sector can face.

And it cost a lot of money — at the last count, the total came to well over $40bn!

Tough on investors?

If you had to guess, how do you think you’d have done if you’d bought BP shares five years ago, just a year before the explosion at the Deepwater Horizon drilling rig? You might think you’d be sitting in a significant loss, yes? Well, if you though that, you’d be wrong — at 470p, BP shares are almost spot on the break-even point now.

And on top of that, you’d have had five years of decent dividends — even in 2010, the year of the disaster, the dividend still yielded 2.7%. In fact, £1,000 invested in BP five years ago would be worth about £1,230 now.

That was the worst!

Of course, many other FTSE 100 shares easily outstripped BP over that time. But the point is — this was the worst time for BP in living memory! And if that’s how risky an investment in BP really is, you’re unlikely to have much to worry about over the next 20 years.

So what about that future? Well, there’s a fall of about a third in earnings per share (EPS) forecast for the year to December 2014, which is admittedly not great — but even with that, the shares are on a forward P/E of only 9, with the FTSE’s average P/E standing around 17 right now.

Steady income

The dividend looks pretty good too, with a yield of 5% expected this year — and it should be more than twice covered by earnings.

Does that sound cheap to you? It certainly does to me. (If course, when we’re considering a long-term ISA investment, we don’t need to be too worried about short-term undervaluation — but it helps).

What might £1,000 invested now in BP be worth for your ISA in two decades? Assuming a 5% annual dividend yield reinvested, and a modest 3% per year share price growth (which I consider very conservative), we’d end up with nearly £4,700.

Want some?

Worth considering for some of your new £15,000 ISA allowance? I’d say so!

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.

Alan does not own any shares in BP.

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