What can you say about BP (LSE: BP)? This time last year, I’d have rated the BP share price as one of the most dependable in the FTSE 100. I know oil is politically out of favour, but I’ve always expected it to be with us for many decades yet. And the big oil companies will surely be heading moves away from fossil fuels anyway.
Twelve months ago, BP shares were down over the previous year. From the highs of September 2018, the price had lost close to 15%. It was essentially following a weakening in the oil price. But we’d previously had a bull run, and BP was paying very attractive dividends. That’s all changed now.
BP share price crash
So far in 2020, the BP share price has lost more than half its value. And since those record 2018 levels, it’s down 65%. Today, BP shares have reached their lowest for the entire two decades of the current century. The price was even higher during the oil price crisis, when oil dropped to $25 per barrel. If someone had told you a year ago that this would happen, you’d have laughed at them, right?
The oil price collapsed briefly in the 2020 stock market crash. But it’s recovered since then, and now trades at over $40. On that measure, the BP share price surely deserves to be significantly above its oil crisis levels. Well, the old BP, maybe.
Dividend shock
But we’ve experienced one truly momentous event in 2020, which chilled investors to the bone. BP cut its dividend. Even throughout the earlier oil slump, its CEO at the time, Bob Dudley, calmly assured us the dividend was safe. He appeared totally confident, and that confidence was contagious.
Mr Dudley has retired now, replaced by Bernard Looney. And BP has slashed its dividend in half.
That news came with first-half results in August, the same day the company announced its “New Strategy To Deliver Net Zero Ambition.” The BP share price wavered for a few days, and then dropped like a brick.
The core of the new plan is to aim for a tenfold increase in low-carbon investment by 2030, with a rise of up to eightfold by 2025. And it includes all kinds of reductions: hydrocarbon production down 40% by 2030, emissions from operations down 30%-35%, upstream emissions down 35%-40%, no exploration in new countries… and more.
Buy, sell, or what?
I reckon BP was rather canny in the timing of all of this. I think it would have been a harder sell to institutional investors had it come at a time of medical and economic health. But what should we do now?
BP hasn’t forgotten its investors, at least not according to the new strategy. It intends the rebased dividend to be resilient. And at today’s BP share price, the yield is up around 8%. The company also says it will return at least 60% of surplus cash through buybacks, and aims at “7-9% annual growth in EBIDA per share to 2025.”
Is the new BP a good investment now? With the shares on a P/E of 11 based on 2021 forecasts, and that high rebased dividend yield, I think it could be one of the best buys on the FTSE. Investors might need nerves of steel, though.
