There are some massive companies on the FTSE 100. Two I’ve been watching include BP (LSE: BP.) and Shell (LSE: SHEL).
For investors looking to gain exposure to the oil and gas industry, which of the two could be worth taking a closer look at to consider buying? Let’s explore.
Share price performance
There are a few factors I want to assess to answer that. The first is share price performance.
Let’s begin with BP. Year to date, the stock has lost 8.6% of its value. Over the last year, it’s down 10.9%. Zooming out, its performance over the last five years doesn’t make for much better reading. During that time, the Footsie stalwart’s share price has fallen 14.5%.
Now let’s compare that to Shell. The stock has had a much better 2024. Year to date it’s up 5.5%. In the last year, it has risen a healthy 14.3%. Over five years, it has climbed 14.5%. That makes Shell a clear winner.
Valuation
Next, I want to look at how both stocks are valued right now.
As shown below, using the key price-to-earnings (P/E) ratio, Shell is slightly cheaper, trading on a P/E of 12.3 compared to BP’s 12.9.
Created with TradingView
That said, BP is slightly cheaper when looking at the forward P/E. BP’s is 5.8 compared to Shell’s 6.4.
Created with TradingView
Income
I’m an investor who likes to target income. Therefore, I think it also makes sense to see what sort of passive income could be made from either stock. As seen below, BP is the clear winner here with a dividend yield of 5.3% compared to Shell’s 3.9%.
Created with TradingView
The risks
As they operate in the same sector, both companies have exposure to some of the same risks. First, the oil industry is cyclical. When oil prices slump, the prices of both stocks tend to reflect that.
Furthermore, BP and Shell will have to navigate the transition to a greener world, which will be challenging. BP recently slowed its renewables rollout, putting more emphasis back on oil and gas.
While that should boost profits in the near term and the 2050 net zero target is looking unlikely, the companies’ strategies will be met with scrutiny and possible regulatory controls.
The verdict
Not much separates the two. They both trade on attractive valuations, in my opinion. And while BP’s share price performance has been underwhelming, it has translated to a higher yield.
I favour BP for the higher income on offer. I already own some shares and a key reason I invested was for its meaty yield.
What’s more, I can see it growing. In its latest results, it revealed that free cash flow more than doubled to $4.4bn. As a result, it hiked its dividend by 10% while also announcing another $1.75bn in share buybacks.
That’s part of management’s wider aim to buy back up to $14bn worth of shares between last year through to the end of 2025. With it on track to buy back $7bn worth of shares this year, it looks in a good place to achieve that target.
