The market likes the half-year results from BP (LSE: BP) today (30 July), and the share price rose a little with the news.
For me, the highlight in the report from the gas, oil and alternative energy provider is a 10% increase in the half-year dividend.
The company has been raising the shareholder payment each year since 2022, and City analysts predict further increases through to 2025.
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Volatility is normal for BP
For many investors, BP is worth considering for inclusion in a diversified portfolio of dividend-paying shares.
However, it’s worth noting the business has suffered from cyclical gyrations in the past, and that the dividend hasn’t always gone up in a straight line.
The most recent bout of dividend cutting arose in 2020 and 2021. Back then the pandemic was affecting the commodity markets — for example, the price of oil was all over the place.
As we might expect, BP also suffers from multi-year volatility in its share price. So the cyclicality in operations is an ongoing risk for shareholders. If we get the timing wrong, it would be easy to lose money with BP shares.
Nevertheless, there are positives to take away from today’s report. Operating cash flow and net debt came in broadly similar to the figures a year ago, suggesting recent stability in the firm’s operations.
The go-to indicator with BP has always been the powerful stream of cash flow. Earnings are sometimes erratic, but it’s often been reassuring to follow the cash!
Meanwhile, on top of the dividend increase announced, the company is halfway through a share buyback programme likely to be worth $7bn for the whole of 2024.
Focusing operations
To me, that suggests the directors think the stock is offering decent value. With the share price near 459p, the forward-looking yield for 2025 at just above a chunky-looking 5.5%.
Chief executive Murray Auchincloss said BP is aiming for a “simpler, more focused and higher value” overall business. The approach will support “growing” returns for shareholders ahead.
That sounds encouraging to me. Focus and simplicity are almost always a good thing in any business. BP’s been around for a long time, so it’s good to see the firm nipping and tucking its operations. Hopefully the firm will move with the times and target areas with the most promising potential returns.
Auchinloss said recent strategic moves include the decision to go ahead with the Kaskida development in the Gulf of Mexico, and also to take full ownership of BP Bunge Bioenergia. On top of that, the firm will now scale back plans for new biofuels projects.
There are no guarantees of a positive investment outcome for shareholders. But despite the risks, I think BP’s streamlining programme has the potential to increase shareholder returns and hopefully push the share price higher in the coming years.
Therefore, I’d dig in with deeper research right now and consider the stock for a potential long-term hold.
