Will the next BP CEO convince me to buy more of this dividend stock?

BP’s timid share price gains have flattered to deceive. But a new CEO may unlock the true value of this dividend stock and convince me to buy more.

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Global oil prices continue to flirt with $100 per barrel levels. Production cuts by Saudia Arabia and Russia, coupled with geopolitical tension in the Middle East, have lifted oil prices. And with it, the fortunes of energy dividend stocks like FTSE 100 oil major BP (LSE: BP.).

Its shares have risen by 14.5% year-to-date in 2023 in step with a 4%-plus dividend yield. But rather than being overjoyed as a long-term investor, I believe the current climate has helped BP mask over three years of undervaluation.

Were it not for poor strategic choices, messaging, and the unceremonious departure of CEO Bernard Looney in September, BP’s upside may well have been — and could still potentially be — higher under a different boss.

Tedious Looney tunes

Looney’s stewardship of BP was bewildering at times and made it a laggard among peers. From his first day in office in February 2020 to his last in September 2023, BP’s shares rose by around 7% on average.

By contrast, over the same period Shell posted gains of around 26%, Chevron of around 50% and ExxonMobil of around 85%. So, why weren’t markets taken in by BP? Because none of the tieless analysts’ conferences and barrages on social media by Looney on how to “Reimagine BP” cut through.

From my perspective, all Looney offered was platitudes on energy transition only too common in the market and overpayments for renewables leases to jump on a bandwagon.

And yet, it’s the company’s core hydrocarbon assets that sustain its earnings and dividends. Even Looney once noted: “When the market is strong, when oil prices are strong and when gas prices are strong, this is literally a cash machine.”

So, if reimagining BP for shareholders was the idea, Loney’s muddled gospel was anything but. For shareholders, clear messaging is just as important as focusing on a price-to-earnings (P/E) ratio, where BP isn’t quite setting the pace either.

Versus a FTSE 100 median P/E of 12.5 and rival Shell’s 8.5, BP’s P/E comes in below 7!

Unlocking value or more of the same?

A new CEO could create share-price gains by enhancing a push into viable natural gas projects and investing in keeping oil production stable.

Additionally, s/he may offer a more pragmatic vision for phased and strategic investments in the energy transition. One that doesn’t include overpaying for renewables leases in the current high interest rate climate.

Sounds familiar? Because it is! Rival Shell is already doing so and more. So, can the incoming BP boss embark on a similar unlocking of value for me to add more shares to my portfolio?

If s/he does and oil prices remain elevated north of $75, for me a 100% jump from BP’s current share price to around 1,100p beckons over a 12-month period, as well as a P/E ratio closer to the current FTSE 100 median.  

Caveats do apply. BP’s board may like the company’s current direction notwithstanding its lagging share price. They could bring in someone who keeps BP on Looney’s path. The oil market may also cool down faster in 2024 than many imagine. Both would precipitate a share price decline that would make me reconsider my holdings.

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.

Gaurav Sharma owns shares in BP and Shell. 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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