My name is James Beard and I own BP (LSE:BP.) shares. There, I’ve said it.
But with a greater emphasis on ethical investing, should I be ashamed of myself? And with drilling for oil and gas as old as the hills, BP’s activities are as far removed from those of the US tech giants as you can probably get.
Yet, there’s so much hype surrounding the ‘Magnificent 7’ and very little focus on ‘old-fashioned’ UK stocks. Is this another reason why I should be embarrassed for having the energy giant in my ISA?
A moral dilemma
In October 2024, the Association of Investment Companies published research showing that 48% of investors were guided by environmental, social, and governance (ESG) principles when deciding where to put their money. On this basis, around half won’t want to touch BP or, for example, defence and tobacco companies.
Surprisingly, this figure was down from the 66% reported in 2021. Personally, I don’t think it’s a coincidence that the top six-yielding shares on the FTSE 250 (at 15 December) are investment trusts specialising in clean energy assets. Although their dividends have been steadily rising in recent years, the biggest reason for their generous returns (no guarantees, of course) is a big fall in their share prices. Post-pandemic interest rate hikes have made it possible to earn better – less risky – returns elsewhere.
But although BP’s shares might not appeal to everyone, its activities are legal and most of us consume oil and gas frequently. I’m therefore comfortable owning the company’s shares.
Closer to home
Since December 2024, BP’s shares have risen by more than the stocks of five of the Magnificent 7. This is against a backdrop of a 17% drop in Brent crude. Sometimes, it pays to buy British.
One issue with the energy giant is that due to fluctuations in commodity prices, its earnings can be volatile. However, I don’t pay too much attention to oil price forecasts. The price is notoriously difficult to predict with any great accuracy. Having said that, due to excess supply in the market, most economists appear to be anticipating a fall in 2026.
But BP’s share price hasn’t been obviously impacted by this year’s fall in the oil price. That’s because I suspect investors are attracted by its above-average dividend. Also, I think the group’s plans to improve its free cash flow by reducing costs, divesting of non-core assets, and producing more, sounds appealing to non-ESG investors. Ultimately, this should lead to a net debt reduction.
The group’s relatively strong share price performance could also be evidence of the effectiveness of its share buyback programme. During the four quarters to September, BP’s reduced the number of shares in circulation by 4.1%.
Final thoughts
To be honest, I’m not ashamed about trying to make money out of UK shares. Sometimes, it’s easy to be tempted by the bright lights of US tech stocks and overlook home grown companies with strong earnings and healthy dividends, like BP.
Of course, the move to net zero means – ultimately – there will be a much reduced need for oil and gas. But this is several decades away. In the meantime, I’m not embarrassed to say that I believe there are plenty of reasons why the group’s shares are worth considering.
