I’ve been working out how a number of our top FTSE 100 shares have been performing over the past decade. And while its great to see the massive profits from high flyers like ARM Holdings, it can be more educational to see how the troubled members of the top index have fared.
Banks aside, there are few that have been as troubled as BP (LSE: BP) (NYSE: BP) after the Gulf of Mexico disaster.
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A bad 10 years
During such hard times, you might expect the BP share price to have fallen, and you’ be right — ten years ago this month you would have had to pay around 528p per share, and today you could sell them for only 450p apiece.
A £10,000 investment in BP would today be worth only £8,523, so you’d have lost nearly 15% of your cash. That’s not a very good advertisement for investing in shares — at least, not if you’re unlucky enough to choose the wrong ones.
But wait a minute. Shares don’t just change in value, they also pay dividends. Now, BP’s dividend was slashed in 2010 as the firm strove to get its hands on the cash needed to cover the disaster costs. But prior to that it was paying out nicely, and has already crept back to a yield of better than 5% in 2013.
In total, the ten years of dividends would have given you £4,027 in cash to add to your pot — taking your total to £12,550 for an actual gain of 25.5%. That’s not great, but at least not a loss.
Reinvest the cash
That’s if you took the cash, but what if you’d reinvested it in new shares every year instead?
Interestingly, even though BP shares have fallen in value over the period, you’d still have made more money than just keeping the cash. Had the price declined in a perfect straight line you’d have been worse off by reinvesting. But the erratic prices and the resulting pound cost averaging (which would have bought you more shares in the dips) would have added an extra £525 for a final total of £13,075.
That’s not a huge extra amount, but its real value lies in the fact that you’d be going into the next decade with 2,905 BP shares rather than the 1,894 you started with 10 years ago.
Overall, you’d have made a gain of 31%, which would have been a little behind inflation over a decade.
But that’s for a company which suffered an accident that claimed 11 lives and caused the largest accidental marine oil spill in the history of the petroleum industry, and has faced costs so far of $40bn and climbing. Oh, and we also had that thing called the recession.
I think that helps put the risk of investing in shares into a bit of long-term perspective.