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Can the BP share price rise further?

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A plant pipetrack at BP's Hull Petrochemicals site
Image: BP

The BP (LSE: BP) share price has so far increased by almost 20% this year. Over the past 12 months the stock has risen by 3%. But I reckon it could rise further.

I’ve been bullish on the stock for some time. The BP share price also comes with an attractive dividend yield of 6.5%. But as economies are starting to recover from the pandemic, more oil and gas is likely to be used, which should be positive for BP. Here’s why I’d buy the stock.

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Oil price

BP recently reported its half-year results and one thing was clear. The rise in the oil price has definitely helped. In fact, the FTSE 100 company expects oil demand to recover in 2021 and reckons it will reach pre-Covid levels some time in the second half of 2022.

As coronavirus restrictions are gradually lifted across the world and the vaccine rollout continues, the macroeconomic outlook should improve. The world still runs on oil and more of the commodity is likely to be used. This should help boost the BP share price.

The numbers

In a nutshell, the rising oil price boosted half-year profits compared to a loss in the same period in 2020. It helped improved cash flow as well. As an income investor, this is certainly something I want to hear.

But the good news doesn’t stop there. The balance sheet is getting stronger. It’s worth noting here that BP had a target to reduce its net debt position to below $35bn. It met this goal earlier than expected and I think it’s encouraging to see that this is still the focus. As of the end of H1 2021, the net debt position stood at over $32bn.

But this reduction in liabilities hasn’t just come from the rise in the oil price. The company has been selling off assets and using the proceeds to reduce the debt pile. Of course, this is only a temporary measure to get BP on the right path. It appears to be working and the recovery in commodity prices should help too.

Investors

BP has kept its investors happy after it announced that it’s increasing the dividend. It increased the second quarter income payment by 4% to 5.46 cents per share. It’s also commencing $1.4bn in share buybacks from the surplus cash flow in the first half of 2021.

What I like is that the management is shareholder friendly. It’s also rewarding stockholders with potentially more income. BP has said that if the oil price stays at $60 per barrel, it can afford to pay out an annual increase in the dividend of around 4% through to 2025. It also expects to deliver $1bn per quarter share buy backs during the same period.

Of course this is all dependent of the oil price. And there’s no guarantee the company can deliver its income and buyback goals. In my opinion, the firm has been bold to suggest these capital distribution targets. The problem is that if it fails to deliver, it could impact the BP share price.

Should I buy?

Yet I reckon the stock could rise further. It’s also taking the right steps by investing in renewable energy assets. The rise in dividends and the share buybacks are certainly sweeteners for investors, hence I’d buy.

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Nadia Yaqub 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.

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