Back in 2011, almost a decade before Covid-19 ravaged the world, one FTSE 100 behemoth suffered a horrific tragedy that almost killed it.
The sheer scale of this disaster caused a wave of selling that crashed the firm’s shares by 55%. Many felt that the company was finished (but not me). The unfortunate firm, of course, was oil giant BP (LSE: BP).
A FTSE 100 pillar crumbles
BP has been a pillar of the FTSE 100 since its privatisation by the UK government in 1987 (alas, just as global markets crashed on Black Monday, 19 October 1987). Continued success in oil exploration and production saw BP climb the Footsie ranks until its value eventually exceeded £130bn.
Then an environmental disaster of epic proportions nearly killed BP. On 20 April 2010, BP’s Deepwater Horizon offshore oil rig exploded. The incident killed 11 crewmen and polluted vast areas of the Gulf of Mexico.
This tragedy sent BP shares crashing from their 2010 peak of 650p to just 296p on 25 June 2011. Shocked BP owners had lost £67bn in shareholder value. Some feared BP would be bankrupted by environmental damages in US courts. But I kept faith with this FTSE 100 behemoth.
At 296p, I urged Motley Fool readers to buy deep into BP shares. My original article has been archived, but here’s a review a year later. BP shares swiftly recovered, spiking above £5 and up by exactly half (50%) one year on.
The tens of billions in damages BP paid after Deepwater would bankrupted most other businesses. But BP sold assets, slashed costs, and lived on.
BP survives Covid-19 and the oil-price slump
In an eerie echo of the past, BP shares hit their 2020 high above 504p in early January. Then came the double whammy of the oil price war and the coronavirus. BP shares tanked, hitting a brutal low below 223p on 19 March.
Today, shares in the firm trade at 369p, two-thirds above their March low. Even so, they are down a third over the past 12 months and languish 35% below their 12-month high.
A fat dividend is BP’s ‘Big Positive’
I have no idea what will happen to BP’s share price, earnings, and profits over any future period. Likewise, I cannot tell you what will happen to the price of oil over any time scale – because no one can.
That said, I would buy BP shares for their main attraction, which is a fat dividend. The latest yearly dividend of over 33p a share equates to a dividend yield of 9%. That’s right, 9% a year, paid quarterly in cash, from a FTSE 100 firm worth a tidy £73bn.
To sum up, BP might turn out to be a growth share, who can say? But right now, it’s a dividend play. Indeed, reinvesting that 9% a year back into shares will double your money in eight years (all else being equal). Even if BP cuts its dividend by a third, cutting the yield to 6%, that’s still a handsome cash return each year (tax-free in an ISA) as we all grow older and richer!
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.