Why BP plc Really Yields 9%!

BP plc (LON: BP)’s yield is much higher than you think.

| 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.

sdf

bpBP (LSE: BP) (NYSE: BP.US) is one of the FTSE 100‘s largest constituents and also one of the index’s dividend stalwarts. Indeed, at present levels the company’s shares support a dividend yield of 5.6% and the payout is covered more than three times by earnings per share. What’s more, BP currently trades at a lowly forward P/E of only 8.8. 

However, BP’s shares are even more attractive than they first appear as the company is returning huge amounts to cash to investors via share buybacks. After adding in the cash returned via buybacks, BP’s implied yield jumps to 8.8%. 

Cashing in

BP offers its investors a bit more than just a hefty dividend payout. The company’s share buyback plan, which has been in place for some time now, has been designed to return billions to shareholders. Combine these buybacks with the company’s hefty dividend payout and the company is second to none when it comes to shareholder returns.

While some investors many not be convinced that buybacks are a good use of company cash, there’s no denying that they have their benefits. For example, by returning cash to investors buy acquiring its own stock, BP avoids the double taxation that usually applies to dividend payouts.

Further, buying back stock should increase earnings per share, which should drag BP’s share price higher over the long term.

Crunching numbers 

Over the summer BP completed its first mega buyback. The total value of stock brought back was $8bn, the proceeds received from the sale of the company’s interest in TNK-BP. On a per share basis this works out as an additional distribution of around 26.5p per share.

And BP has more buybacks planned. The company has laid out plans to sell off another $10bn worth of assets before the end of 2015, with the proceeds earmarked for buybacks. $3.4bn worth of sales have already been agreed — it seems as if management are keen to deliver on their promise. 

A $10bn buyback funded with asset sale, as well as the $8bn buyback undertaken with the proceeds from the disposal of TNK-BP, BP will have returned $18bn, or around £11.3bn to investors. With just under 19bn shares in issue, that works out at around 59.5p per share.

These are some impressive figures but they become even more appealing when you factor in BP’s dividend yield as well. During the past 12 months BP has returned a total of £7bn to investors though both buybacks and dividends. On a per share basis, these cash returns are worth approximately 37p per share, an equivalent yield of 8.8%.


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.

Rupert Hargreaves 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

The flag of the United States of America flying in front of the Capitol building
Investing Articles

This S&P 500 blue chip looks far too cheap to me at $183!

Our writer picks out one high-quality S&P 500 stock that is currently the cheapest among the 'Magnificent 7' group of…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Down 23% today! This one’s stinking out my Stocks and Shares ISA

Our writer's wondering what to do with a problem named Ashtead Technology (LON:AT.) in his Stocks and Shares ISA portfolio.

Read more »

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing Articles

Down over 20%, should I dump this FTSE 100 dividend stock?

Our writer has been loving the passive income this dividend stock has been throwing off. But does the big share…

Read more »

Businesswoman calculating finances in an office
Investing Articles

I’ve just bought this FTSE share…

Our writer explains the thought process that led to him buying this FTSE share. One that’s likely to do well…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Just over £5 now, easyJet’s share price looks cheap to me anywhere under £13.84

easyJet’s share price has dropped recently, which could mean the business is worth less than before. Conversely, it could mean…

Read more »

Trader on video call from his home office
Investing Articles

36% under ‘fair value’ and forecast annual earnings growth of 6%, should investors consider this FTSE 250 stock?  

This FTSE 250 firm is a leader in a growing sector and has secured several new sites to drive its…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

3 UK shares that have recently become takeover targets

Mark Hartley examines why these three UK shares have become takeover targets and could be bought out by rivals in…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

These 4 FTSE 100 stocks are currently yielding more than 8%!

Our writer believes there are plenty of passive income opportunities among FTSE 100 (INDEXFTSE:UKX) stocks. These are the top four…

Read more »