The BP share price has remained stagnant, but I’d still happily snap up some shares!

Despite what looks like a relatively subdued period for the BP share price, our writer explains why she’d happily buy some shares.

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Image source: BP plc

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When a stock doesn’t experience much capital growth, it makes me wonder what’s going on, and whether it is a good investment. In the case of the BP (LSE: BP.) share price, I reckon it definitely is.

Here’s why I’d love to buy some shares when I next have some spare cash to invest.

What’s happening?

It’s perhaps a slight surprise to see BP shares stagnate, especially as it is one of the largest oil and gas businesses in the world

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Over a 12-month period, BP shares are down 1% from 460p at this time last year, to current levels of 454p.

Looking back even further, the shares are down 16% over a five-year period from 546p in July 2019, to current levels. In fact, the shares have remained pretty stagnant since the early 2000s.

Created with Highcharts 11.4.3Bp P.l.c. PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Digging deeper

For me, the BP share price is just the tip of the iceberg. It doesn’t really provide the full picture of what still looks like a top stock to buy.

It’s hard to ignore BP’s previous track record, its enviable market position, as well as future prospects. However, it’s worth remembering that past performance is never a guarantee of the future.

BP has been a firm-favourite among many investors for years due to the firm’s stellar reputation for shareholder value and returns. With such strong earnings, profits, and growth, the business has grown dividends for a number of years. This is one of the big reasons I’d look past the lack of capital growth.

At present, the shares offer a dividend yield of 5%. For context, this is higher than the FTSE 100 average of 3.9%. However, I do understand that dividends are never guaranteed.

Furthermore, BP shares currently look good value for money, if you ask me. They trade on a forward price-to-earnings ratio of just over seven. This is lower than the industry average – closer to eight – and below the FTSE 100 index average of 12.

Risks and final thoughts

There are bullish aspects that worry me. For starters, a recent trading update mentioned earnings will be less than previously forecast. As BP’s dividend is its most attractive trait for me, I can’t help but wonder if lower-than-expected earnings mean returns could be impacted here.

Another risk I’ll keep an eye on is that of the move away from traditional fossil fuels, which are BP’s bread and butter. The firm needs to move towards greener alternatives. BP actually decided to scale back its plans for this according to its recent update. This could be a reason why the share price has been down in the past week or so.

The rise of ESG investing could have prompted a negative reaction to this news. Furthermore, the hefty investment that will be required for the transition to net zero ambitions could hamper shareholder returns too.

I’m smart enough to understand that energy stocks like BP come with cyclical risks. However, despite a lack of capital growth, BP shares still look like a good buy for me and my holdings to bag juicy dividends.

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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.

Sumayya Mansoor 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

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