BP (LSE: BP) shares are popular within the UK investment community, and it’s easy to see why. This is a well established, blue-chip FTSE 100 company that has paid out some attractive dividends.
But have BP shares been a good investment lately? To answer that question, I’m going to look at how much I’d have today if I had invested £5,000 in the stock at the start of the year. Let’s crunch the numbers.
BP shares have delivered strong gains in 2022…
At the start of 2022, BP shares were trading at 331p. Today however, they’re changing hands for 429p – roughly 30% higher. This means that if I’d invested £5,000 back then, my capital would now be worth about £6,480 (ignoring trading commissions and taxes).
Of course, I also need to factor in dividends here. If I’d owned BP shares from the start of the year, I would have been entitled to three dividend payments, totalling 13.7p. Assuming I took them in cash and didn’t reinvest them, these would be worth about £207. So, in total, I’d have about £6,687.
I’d certainly be happy with that return. This year, most major stock market indexes have gone backwards.
… but the three-year performance is not so good
What about if I had invested in BP shares three years ago? Would they still have been a good investment?
Well, in 2019, BP was trading at around 519p. This means that if I had put £5k into the stock back then, my capital would now be worth around £4,133. Add in dividends paid over the three-year period (61.5p) and I’d have about £4,725.
Now obviously this is not such a great result. If I’d put £5k into the stock three years ago and my money was now worth nearly £300 less, I’d be a little disappointed. After all, it’s often said that shares tend to return around 7-10% per year.
Two takeaways from the share price
Looking at these calculations, I think there’s two important takeaways here. The first is that oil stocks don’t always make the best long-term investments. This is due to the fact they are highly cyclical – their share prices tend to fluctuate a lot depending on the price of oil.
It’s certainly possible to make money if you get your timing right. However, this is easier said than done.
This cyclicality is one reason I don’t own any oil stocks. Put simply, the boom/bust nature of the industry is a turn-off for me. I prefer to invest in companies that are a little more stable in nature. Alcoholic drinks giant Diageo is an example.
The second takeaway is that, when investing in shares, it’s important to own a diversified portfolio. If I’d put together a portfolio of 20 or more stocks (including some international stocks) three years ago and one of the stocks was BP, I would most likely have generated solid returns. I’d probably have a few strong performers offsetting the underwhelming returns here.
However, if I had only bought a handful of stocks, and one was BP, my overall returns might be quite low, as BP would have a much bigger impact on the portfolio.
So diversification is crucial when it comes to investing in shares.
