I’ve been looking at what the analysts think about the BP (LSE: BP.) share price for 2024.
A growing number of them are getting bullish about the prospects, and they base it largely on strong dividend forecasts.
I think I agree, and I’ll tell readers why. Let’s take a look at the forecasts themselves first.
The forecasts
There’s a predicted dividend yield of 4.9% for the current year, according to various reports.
We’ve already had three of the year’s quarterly dividends, so I think we can be fairly confident in that forecast now.
For the next two years, analysts think we’ll see the dividend rising to 5.5%. That’s even though they expect earnings to fall a bit.
I don’t see any problem there, though. That’s because BP’s earnings should still be easily enough to cover the cash. At worst, we’d see cover of 2.7 times.
Share price to change?
Ths big question is, will the prospects of filling our pockets with dividend cash get enough of us back to buying the shares?
BP isn’t the only oil stock that’s being touted as one to watch in 2024. No, Shell is there too, with its similar earnings and dividend outlook.
If we look at the share price charts, Shell is slightly ahead. Does that mean we might get a catch-up from BP now? I think we might.
The elephant
Of course, we can’t ignore the elephant in the room when we look at BP.
It’s that oil and gas, and COP28, thing. Still, the looming end of fossil fuels has been with us for some years now. And I reckon it could loom for quite a while yet before it actually happens.
The other, perhaps more immediately pressing, uncertainty is over oil prices.
After a peak in September, the price of a barrel has dropped to around $77. Further falls could put pressure on the dividend.
Could it be enough to eat into the safety margin provided by that strong dividend cover? I’m cautious, but I doubt it.
Valuation
For me, it all comes down to the valuation of BP shares. And we’re looking at a price-to-earnings (P/E) ratio of only 6.5 based on 2024 forecasts.
I just think that’s too low, even bearing in mind those two big threats, one long term and one short.
We’ve seen markets moving away from good old dividend-based valuation in the past few years. And many have been guided by market sentiment and short-term share prices instead.
Could 2024 be the year we get back to fundamentals? If it is, I do think we could see the BP share price do well.
Will I buy?
Saying all that, BP shares are not on my New Year shopping list. And there’s one good reason for that.
It’s because I see other stocks on even lower valuations, and with more attractive dividends. They include stocks like banks, whose long-term businesses will surely outlive generations of energy needs.
