A 4.79% yield and P/E of 8.56! BP shares look a no-brainer buy given these numbers

BP shares are climbing again as political tensions drive up the oil price. Yet the stock looks good value with healthy dividend prospects.

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BP (LSE: BP) shares have given investors a bumpy ride over the last decade or two as the company has faced a series of major threats to its future.

The fatal Deepwater Horizon blow-up in April 2010 cast a heavy shadow over the FTSE 100 oil and gas giant for years, but it survived. It still hadn’t fully recovered when the pandemic struck, and sent the oil price tumbling below $20 (taking BP shares with it).

BP, like all the fossil fuel industry, has withstood two apparently mortal threats. The first was peak oil, the theory that we would run out of the black stuff leaving oilies nothing to drill. That theory was killed off by the shale revolution. While oil is getting harder to access, reserves are probably good for a century.

This stock is a survivor

The second supposedly terminal threat was net zero, which says we must voluntarily stop drilling oil because of global warming. Unfortunately, the shift to renewables is proving financially and politically tricky, making it hard to kick our addiction to fossil fuels. Again, BP will muddle through.

I think BP still has a role to play in a balanced portfolio of UK shares, and will continue to do so for a good few years. That said, commodity stocks are cyclical, and I always prefer to buy when they’re down in the dumps rather than high and flying.

Today, BP looks cheap, trading at just 8.56 times earnings. That follows a 12.32% drop in its share price over the last 12 months. The stock has started to recover in recent weeks, as Red Sea tensions drive Brent crude back above $80 a barrel. Saudi Arabia appears to have signalled that it will limit production to 12m barrels per day for the foreseeable future, which will help underpin the price.

BP continues to bank huge profits, even if they have slipped from the highs it hit during the energy shock, when oil touched a dizzying $128 a barrel. 

Dividends and buy backs

Last Tuesday, we learned that full-year underlying replacement cost profit halved from $27.6bn to $13.8bn. Q4 fell from $4.8bn to $3bn, but the stock still jumped as this comfortably beat consensus forecasts of $2.77bn.

Shareholders look set to reap the rewards, with the Q3 share buyback of $1.5bn upped to $1.75bn in Q4. Investors can now look forward to another $3.5bn of repurchases in the first half of 2024. 

BP is a bit more cagey with dividends but the stock is still forecast to yield 4.79% in 2023, rising to 5.02% in 2024.

There will be further threats, of course. Every bumper quarterly profit haul brings renewed calls for a UK windfall tax, which a future Labour government might find hard to resist. BP has net debt of $20.91bn, which is forecast to hit $25.71bn in 2024. Yet with anticipated sales of a cool $216bn that year, I refuse to be concerned.

I’ve got indirect exposure to BP shares via a FTSE 100 tracker, but I’d rather hold the stock directly and now looks like a good time to buy. I will add it my self invested personal pension (SIPP) as soon as I have a bit of cash to spare.

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 has no position in any of the shares mentioned. 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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