Shares in oil and gas giant BP (LSE: BP) have fallen by 25% over the last year, leaving this FTSE 100 stalwart with a tempting 6.6% dividend yield.
However, while BP has long been popular with UK investors seeking income, the company doesn’t have a perfect record in this area. The dividend was cut in the wake of the Deepwater Horizon disaster in 2010, then again when oil markets crashed in 2020.
BP is also under pressure again at the moment. First-quarter profits slumped, and industry analysts are starting to wonder if a spell of lower oil prices could turn into a deeper energy market slowdown.
Some investors are concerned about the group’s strategy. Under pressure from activist investor Elliott Management, BP CEO Murray Auchincloss announced a “reset strategy” earlier this year. He hopes to boost profits by pumping up oil and gas production and scaling back spending on renewables.
BP looks like an underdog in this sector right now. But if Auchincloss can pull off a turnaround, I think the shares could offer good value at current levels.
What are City analysts saying?
Expert City analysts follow large companies like BP in huge depth. They model cash flow and profits under different circumstances to produce estimates of future earnings and dividends.
While these forecasts are certainly not foolproof, I find them useful as a measure of current expectations. In this case, I’m particularly interested in City forecasts for BP’s dividend.
Here are the latest estimates for the next three years:
| Year | Dividend per share | Dividend yield |
| 2025 | 24.3p | 6.6% |
| 2026 | 25.5p | 7.0% |
| 2027 | 26.8p | 7.3% |
BP has previously said it plans to maintain dividend growth of at least 4% per year. The company has also said the dividend should remain affordable down to an oil price of $40 per barrel – well below the mid-$60s prices in the market at the moment.
City analysts seem to be on board with this story, suggesting BP’s dividend could remain safe.
Buy BP for a recovery?
I reckon BP could be worth considering at current levels. But I can see a couple of risks.
If energy prices continue to fall, I think its finances could become much tighter. BP might be able to protect its dividend, but this could limit its ability to invest in new projects to support long-term growth. That could leave the company lagging behind rivals in the future.
For me, a second risk is that BP didn’t take the opportunity to cut its debt levels enough when oil and gas prices (and profits) were much higher.
BP’s net debt actually rose by $4bn to $27bn during the first quarter of this year. Some of this may reverse during the year, but Auchincloss’s goal of cutting net debt to $14bn-$18bn by the end of 2027 doesn’t look easy to me.
Auchincloss is planning to raise cash by making disposals, potentially including the Castrol lubricants business. This could be a practical solution. But selling assets for a good price is likely to get harder if energy prices continue to fall.
I can’t help feeling that BP is at the mercy of external events at the moment, rather than being in charge of its own destiny. For this reason, I’ll stay on the sidelines for now.
