BP (LSE: BP) shares have climbed 39% since April, nudging its dividend yield lower. That is because yield moves inversely to price, assuming the annual payout stays the same.
However, analysts forecast the oil and gas giant’s dividend payout will jump this year, based on very strong earnings growth.
So, how much higher might it go, and what annual dividends can I expect if I invest more?
Rising dividend forecasts?
BP paid a total dividend in 2024 of 31 cents, fixed at a sterling equivalent of 24p. This gives a current dividend yield of 5.2%, based on the present £4.58 share price.
That said, analysts’ forecasts are that it will boost its dividends to 24.7p this year, 26.1p next year, and 27.2p in 2027.
That would translate into yields of 5.4%, 5.7%, and 5.9%, respectively.
So, if I were to buy another £20,000 of the stock at a 5.9% yield, I would make £16,028 in dividends after 10 years. This assumes reinvesting dividends — a standard practice known as ‘dividend compounding’.
After 30 years on the same basis, I would be receiving £96,910 in dividends.
By that time, the value of the holding (including the £20,000 initial investment) would be £116,910.
And this would pay me a yearly dividend income of £6,898 at that point!
Solid core business?
Much of BP’s share price rise since April came on the back of major new oil and gas exploration and development announcements. These in turn followed its strategic refocusing on fossil fuels from renewable energy announced in February.
The most recent of these initiatives was the 2 October activation of a $25bn five-pronged energy megadeal in Iraq. The five sites involved are estimated to hold 9bn barrels of oil equivalent. This metric reflects the energy content of various fuels, expressed in crude oil barrel equivalents.
The average cost of oil recovery in Iraq is $2-$3 per barrel. Meanwhile, the average retail price of a barrel of Brent benchmark crude oil is around $64.
Major oil and gas finds have also been announced in BP’s Gulf of Mexico projects and in its supergiant Brazilian Bumerangue oilfield.
Strong recent results
Its Q3 results, published on 4 November, saw profit attributable to shareholders soar 464% year on year to $1.16bn. This is a key driver for increased dividends to shareholders.
Meanwhile, its operating cash flow – itself a major driver of business growth – jumped 15% to $7.79bn.
Over the period, adjusted EBITDA edged 3% higher, while its interim dividend was raised 4% to 8.32 cents.
Given the strong numbers, BP announced a $750m share buyback to be completed by the Q4 results (February 2026). These tend to support share price gains.
Will I buy more?
A risk to the share price is a sustained drop in oil and gas prices, which could pressure earnings.
As of now though, consensus analysts’ forecasts are that BP’s earnings will grow by a stunning 29.4% a year to end-2027.
And it is precisely this growth that powers any firm’s dividends (and share price) higher over the long term.
Consequently, I will be adding to my holding in the firm very shortly.
Moreover, there are other growth stocks in this sector and others that I am closely monitoring for further investment opportunities.
