The BP (LSE: BP) share price was in positive territory this morning as traders reacted favourably to an encouraging set of numbers from the oil giant. Can this continue?
Profits soar
Let’s start by looking at just how good business has been.
Thanks to soaring oil and gas prices, profit came in at $4.1bn for the final three months of last year. This compares favourably to the $3.3bn in Q3. All told, BP made a $12.8bn profit in 2021 — the company’s highest number for no less than eight years.
Bumper cash flow has also allowed BP to strengthen its balance sheet. Net debt stood at $30.6bn at the end of 2021. That’s a reduction of $8.3bn from 2020.
CEO Bernard Looney said the results show that the company is “performing while transforming” into an integrated energy company with more focus on offshore wind and hydrogen projects. I can’t see any reason to argue against that based on today’s figures.
Dividend delight
One of the main attractions of the shares over the years has been its dividend stream. Today, it said it would be returning 5.46 cents per share for the last quarter.
Analysts are predicting that the total payout will rise very slightly in 2022 to 22.4 cents (or 17p) per share. That gives a yield of 4.1% at the current BP share price. For perspective, that’s substantially more than the 0.61% in interest I’d get from the best Cash ISA.
For its part, BP is forecasting being able to raise the annual cash return by “around 4% through 2025“. Having been buying back its own stock by the bucketload over recent quarters, it also plans to purchase another $1.5bn worth of shares from surplus cash flow over Q1.
Getting political
If today’s report made for pleasant reading for investors, the sentiment was not shared by campaigners. This highlights something that I’d need to consider before investing today, namely the threat of a one-off windfall tax. This could certainly have an impact on the near-term performance of the BP share price.
Another thing I’d need to remind myself is that BP has no control over the price of what it produces. Indeed, the company made a point of stating that demand for oil and gas could remain volatile in 2022. Lower production and flat margins are also likely in the current quarter. Again, this could prove a headwind for the BP share price.
Returning to dividends, it’s also vital to remember that payouts are never guaranteed. In fact, BP has been very inconsistent over the years in what it returns to shareholders. That could be an issue for me if I were overly dependent on the £80bn cap company for passive income.
Better buy?
Contrary to many stocks, the BP share price is riding high in 2022. Up 17% year-to-date and almost 57% in 12 months, this is a perfect example of how profitable it can be for me to buy when no one else is.
Seen purely from an investment perspective, I still think there’s a place for the stock as part of a fully-diversified income-focused portfolio. If capital gains were my chief concern, however, I’d easily choose this other stock from the FTSE 100 over the oil behemoth. I’m not buying today as I think a lot of good news looks priced in and I don’t see much room to rise from here.
