With the steady transition towards renewable energy, BP (LSE:BP.) shares are becoming increasingly popular among income investors. And with the stock price tumbling by around 14% since the start of 2024, investors currently have the opportunity to earn a tasty 5.7% yield.
However, with management gradually adapting the business toward renewables, could the dividend yield grow even higher in the long run? Let’s take a look at what the analysts predict.
Uncertainty
As a quick reminder, forecasts are notoriously inaccurate and need to be taken with a healthy dose of scepticism. This is especially true for long-term predictions, which are far more sensitive to changes over time.
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Another risk to consider is that BP pays dividends in US dollars rather than pound sterling. As such, there is the added element of uncertainty regarding the long-term exchange rates between these two currencies.
Nevertheless, what’s the current consensus for BP’s dividend?
| Year | Dividend Per Share (cents) | Dividend Per Share (pence) | Dividend Growth | Dividend Yield |
| 2024 | 30.54 | 23.31 | 10% | 5.7% |
| 2025 | 32 | 24.43 | 4.8% | 6.0% |
| 2026 | 32 | 24.43 | 0% | 6.0% |
| 2027 | 33.83 | 25.83 | 5.7% | 6.4% |
| 2028 | 36.39 | 27.78 | 7.5% | 6.8% |
Growth predictions seem to be largely in line with the group’s historical average during 2012 and 2019 before the pandemic threw a spanner into the works. What’s interesting is that even by 2028, dividends still aren’t expected to recover to pre-pandemic levels.
However, right now, oil & gas production’s still the dominant source of income for this enterprise. So suppose we were to see another surge in energy and fuel prices? In that case, dividends may end up growing faster than currently expected.
But BP’s also in the process of transitioning its energy portfolio to renewables. As of the end of July, the firm has around 59 Gigawatts (GW) of renewable projects in development versus 40GW in 2023.
For reference, 1GW is roughly enough to power 750,000 homes. And as of June this year, the group had 2.7GW of installed renewable capacity. Considering the size of the pipeline and management’s target of reaching 50GW of installed capacity by 2030, BP’s revenue stream’s on track to look considerably different in the years ahead.
Should I buy BP shares today?
The long-term sustainability of this enterprise looks rock-solid, in my eyes. Management’s fully aware of and adapting to the changing energy industry landscape, as demonstrated by their aggressive spending on renewable projects. And this survivability’s undoubtedly a desirable trait for income investors.
However, whether that will be sufficient to maintain and expand dividends is a bit of a question mark, in my mind. The profit margins on renewables are vastly different compared to fossil fuels, especially since regulatory price caps on electricity can harm earnings – a threat that doesn’t exist for commodities like oil.
Therefore, while the long-term dividend forecast looks promising, this isn’t a company I’m rushing to buy right now, even with the attractive yield.
