Is BP still one of the best dividend stocks on the FTSE? I’m not so sure

The FTSE 100 is packed full of top dividend stocks offering generous yields, and this threatens oil giant BP’s status as one of the best on the index.

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Oil giant BP (LSE: BP) has been one of the most attractive FTSE 100 dividend stocks for as long as I can remember. Investors anticipated a yield of 5-6% as standard, but that’s not the case today.

I haven’t looked at it for a while, and was surprised to see it currently yields 3.7%. That’s not exactly terrible, but it is below the FTSE 100 average of 4.1%. It’s possible to get 7% or 8% from some of the dividend aristocrats listed on the index, so is BP the no-brainer buy it used to be?

Other dividend stocks pay more

Actually, BP lost that tag more than a dozen years ago when its share price went into meltdown after the fatal Deepwater Horizon oil spill in 2010.

Before that, its stock peaked at at 641p. It trades at just 487.50p, at time of writing. The BP share price has climbed 26.87% over the past year, so investors have little to complain about on that score. However, it does trade 9.13% lower than five years ago, and the outlook is uncertain as energy prices waiver.

I am always wary of buying shares in companies that have limited control over their own destiny, and I think that applies to the company. Wherever the oil price goes, the BP share price tends to follow. So 2022 was a storming year for the stock, as energy prices rocketed following Putin’s invasion of Ukraine.

A barrel of Brent crude has now retreated to around $85, as the Putin panic subsides, with a likely knock-on effect for BP’s share price. This uncertainty wouldn’t worry me too much if I was getting a thumping 6% yield, but I’m not. This tempers my enthusiasm.

Climate change is a major challenge to it, as management makes what looks like a half-hearted effort to switch from fossil fuels to renewables, drawing criticism from eco-campaigners.

I favour other FTSE 100 stocks

BP’s conservatism could work in its favour, as the green transition is far from simple. Climate change is a real and present danger, but if the last year has shown us anything, it’s that the world still runs on fossil fuels. If we try to change that too quickly, huge social unrest will follow. It’s a delicate and dangerous balancing act.

Yet management will still have to make the shift from oil and gas at some point, and spend a fortune developing renewable resources as political pressure grows.

One positive is that the stock is not particularly expensive today, trading at 15.7 times earnings. Another is that its net debt has now fallen for 10 quarters in a row, to just $22bn in Q3. In November, BP announced a further $2.5bn share buyback, rewarding loyal investors. Lest we forget, it also made whopping profits of almost $8.5bn after tax last year.

It’s a difficult call, but given the risks and BP’s relatively low yield, I think other FTSE 100 dividend stocks have more to offer my portfolio today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones doesn't hold any of the shares mentioned in this article. 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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