I’d buy 9,595 shares of this dividend stock to generate an extra £200 of monthly passive income

BP shares currently have an eye-catching dividend yield of 5.1%. This makes them an excellent opportunity to make some passive income on the side.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

White female supervisor working at an oil rig

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I want to diversify my income streams. But I’m also a bit lazy, so I don’t want to do much work to achieve this. This is where dividend stocks come in. I can entrust management to take care of the public company and generate a healthy profit. They can then distribute this to me in the form of dividends. Aside from researching the company and keeping up to date with its activities, there’s very little for me to do. This makes it the ultimate form of passive income.

BP (LSE:BP) shares look like a great option for this. The company announced its second-quarter results for 2024 on Tuesday (30 July). It raised its dividend from 7.27 cents per share to 8 cents. This is a 10% rise, yet its share price has fallen by 1.2% since the news. Does this present a buying opportunity?

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

The dividend opportunity

If I use the Bank of England exchange rate of 1.2793 at the time of writing on 2 August, that 8 cents dividend per share is equivalent to 6.25p.

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

If we assume that is the new quarterly rate going forward, then the annualised dividend is 25.01p.

At the time of writing, the share price is 449.40p. Therefore, to make an extra £200 a month (bearing in mind that dividends aren’t guaranteed) I’d have to spend £43,119.93 to purchase 9,595 of its shares.

Now, I appreciate that’s no measly sum. However, City analysts are predicting further dividend increases through 2025. There’s strong justification behind this as well because ever since September 2020, the company has raised its quarterly dividend at least once annually.

That means I’m likely to see this extra income rise over time too. If I were to reinvest my dividends back into BP shares, I could also accelerate the rate of growth of my second income.

A strong quarter     

Other than its dividend, BP enjoyed a good quarter.

The company uses replacement cost profit as a measure of its net income. This reflects the replacement cost of its supplies (by excluding inventory holdings gains and losses and their associated tax effect). This was $2.8bn when analysts were only expecting $2.6bn.

Furthermore, its net debt fell from $24bn in the first quarter to $22.6bn.

Cash flow has also been trending upwards, rising from $5bn in the first quarter to $8.1bn this quarter. This is also a great improvement over the $6.3bn generated in the second quarter last year.

Now what?

My one concern with BP is that the world will eventually trend away from fossil fuels. This will be a major challenge for the company, especially as its performance tends to operate similarly to the performance of oil prices.

However, oil demand is still expected to rise until at least 2030. Goldman Sachs researchers think it could even increase through to 2034, which is great for BP. Moreover, the company is planning for a world after fossil fuels by pumping large sums into renewable energy.

It also has a very cheap forward price-to-earnings (PE) ratio of 7.9. Therefore, if I had the spare cash, I’d buy some of its shares today.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Muhammad Cheema 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »