If I’d invested £1,000 in BP shares 5 years ago, here’s how much I’d have today

BP shares have a reputation for paying high dividends. But is the stock actually a good investment? Zaven Boyrazian takes a closer look.

| 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.

BP (LSE:BP) shares are among the most popular to own by UK income investors. That’s likely due to its impressive historical track record when it comes to dividends. Recently, the yield has suffered thanks to the pandemic, but it still sits at a substantial 4.4%.

Let’s explore its performance in more detail and discover if there is a better energy company out there for me to buy.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Weak performance of BP shares

Despite the popularity of BP as an income investment, the performance of its shares over the last five years has been pretty underwhelming. A £1,000 investment in January 2017 would be worth around £780 today based solely on the stock price movement. When taking the approximate £340 of dividends that would have been received during that time, the total rises to £1,120 – a 12% return.

By comparison, the FTSE 100 has delivered only a 3.3% return over the same period. But while BP shares may have outperformed the market, the performance is still disappointing, in my opinion. So, what happened?

Obviously, the biggest drag on performance is the falling share price. And to be fair, it’s not really BP’s fault since the global pandemic is mainly responsible.

With lockdowns being enforced worldwide in 2020, most cars were parked rather than being on the road. The seemingly overnight collapse of demand for fuel decimated BP’s revenue stream. And consequently, the group suffered a record-breaking $20bn (£14.8bn) loss for the year.

Since then, the situation has improved. And management has already begun ramping up its investments in alternative revenue streams. The most significant is renewable energy infrastructure. As the world shifts away from its dependence on fossil fuels, BP intends to dispose of 40% of its oil & gas assets by 2030 – replacing it all with green energy technologies.

The transition process is undoubtedly going to be riddled with challenges. As such, the passive income-generating capabilities of BP shares could become compromised in the future. Only time will tell whether that will happen. But assuming the worst-case scenario, is there a better income investment in the renewable energy space?

A lucrative income enterprise

Greencoat UK Wind (LSE:UKW) owns a diverse portfolio of on- and offshore wind farms scattered across the UK. The company lets the weather generate green electricity, which is then sold to multiple energy providers, including SSE, Centrica (British Gas), and EDF Energy, to name a few.

This business model obviously has some risks. With no control over electricity prices, its revenue stream can be pretty unstable. However, with impressive operating profit margins of over 80%, the company should be able to absorb most adverse movements in regulatory energy price caps, I feel.

Looking at the past five years, the shares have risen by a respectable 17.6%. And when factoring in the additional income from dividends, a £1,000 investment in January 2017 would now be worth around £1,440 – a 44% return. That’s significantly better than BP shares.

With its wind farm portfolio continuing to expand, I believe Greencoat UK Wind could be a better source of passive income. Therefore, personally, I’m more tempted to add it to my portfolio than BP shares.

But it's not the only renewable energy stock to have grabbed my attention. There are plenty of others that look even more promising, such as...

Our 5 Top Shares for the New “Green Industrial Revolution"

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special "Green Industrial Revolution" presentation now

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat UK Wind. 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.

More on Investing Articles

A Rolls-Royce employee works on an engine
Investing Articles

In penny stock territory, is the Rolls-Royce share price set to soar?

The Rolls-Royce share price has sunk recently, falling into penny stock territory. But with flying hours recovering, is it too…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Lloyds shares drop 20% in 4 months. Should I buy now?

Lloyds shares have lost a fifth of their value since peaking on 17 January this year. But after rebounding from…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the stock market recovery stalls, should I wait to buy?

Has the stock market recovery run out of steam? If so, what does that mean for our writer's portfolio? Here…

Read more »

Diagonal chain made of zeros and ones. Cryptocurrency and mining.
Investing Articles

At 55p, is the Argo Blockchain (LON:ARB) share price too cheap to miss?

With a low P/E ratio and strong financial results, could the Bitcoin miner be good value for money?

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Here are 2 recession-proof FTSE stocks!

In the face of current economic uncertainty and fears of a looming recession, this Fool identifies two recession-proof FTSE stocks.

Read more »

British Pennies on a Pound Note
Investing Articles

Here is 1 penny stock primed to benefit from the construction boom!

Jabran Khan delves deeper into a penny stock that he believes could benefit from the construction boom, and explains why…

Read more »

Various denominations of notes in a pile
Investing Articles

Here is 1 top passive income stock to buy and hold!

Jabran Khan wants to boost his passive income stream through dividends and has identified this insurance giant as a way…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

These are the 5 worst ways to invest in stocks

It's all too easy to lose money when you don't really know how to invest in stocks. Here are the…

Read more »