BP (LSE: BP.) shares pay a dividend each quarter. Only a few FTSE 100 stocks are able to achieve this feat. The act of paying an amount every three months requires high stability in the company’s operations and its cash flows. And it comes with benefits to investors, like more consistent payments and the ability to reinvest any dividends more quickly. Quarterly dividends tend to be some of the biggest when looked at as a yearly percentage too.
Let’s propose a target of £1,000 each month in passive income (or £12,000 each year). How many BP shares would be needed to withdraw such an income stream?
How much?
The last quarterly dividend that BP paid was 6.11p (or 8.23 cents) but the two payments earlier this year were 5.95p (8 cents). A rising dividend is a wonderful thing for dividend investors and will keep the income growing year after year. But it does make for a trickier calculation.
Let’s take the current quarterly dividend. Over a year, that payment would require 49,180 shares to make our £1,000 a month passive income. This is assuming an investor is buying the position through a tax-advantaged account like an ISA or a SIPP.
The total outlay to build the income would be £228,689. Quite a lot of money. That’s why most investors take a few years to build up to that amount. Letting compound interest do its thing can bring down the amount of cash to stump up considerably. This works best with a company that raises its dividend payments for years and decades. Is BP one of those companies?
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
A buy?
The BP dividend hasn’t been perfectly consistent in recent years. One occasion wasn’t the company’s fault – the uncertainty of the pandemic. One occasion that was its fault – the infamous 2010 Gulf of Mexico oil spill, which caused the firm to cancel the dividend for a few quarters.
Outside of these aberrations, there’s reason to think that this could be a stable dividend stock in the long run. The central role of oil and gas in our society means the stuff will be needed for decades to come. And with global revenues and operations across upstream and downstream, the oil major is well-diversified.
The threats of lower oil and gas consumption could hurt the share price as time goes on. While dividends may be strong, some investors may worry about losing value on the original stake. BP’s recent move away from its renewable projects may give it less of a hedge against the move to green energy too.
But while there are several strong FTSE 100 dividend stocks to choose from at the moment, I’d say BP is one worth considering.
