The BP (LSE: BP) share price is up 33% this year. Over 12 months, it’s climbed 62%, with a trailing yield of 4%. I don’t want to bombard you with figures but I’ll add that over five years the shares are up 95%. If an investor had tucked away £10,000 in April 2021, and re-invested all their dividends, they would have more than £22,000 today.
Which is a pretty incredible return, for a company that’s been dogged by boardroom controversy and strategic issues. Its success raises an obvious question. Is it too late to buy this high-flying FTSE 100 stock?
Can this FTSE 100 star continue to shine?
This morning (28 April) brought yet more good news for BP investors, as we learned that underlying replacement cost profit more than doubled from $1.5bn to $3.2bn in Q1. This smashed consensus forecasts of $2.7bn. No prizes for guessing the reason. It’s mostly down to the Strait of Hormuz stand-off. BP’s oil trading operations have been a massive beneficiary, as consumers race to secure supplies. Refining margins improved too.
We won’t see the biggest impact from the oil price spike until Q2. Today’s results cover January, February, and March, but the Iran war will only affect the final month’s figures. Q2 numbers are likely to be even better. So does this make BP shares a slam-dunk buy? This is where we need to calm down a bit.
The outlook remains highly uncertain. Nobody knows how the Iran conflict will end. This may partly explain why BP held its quarterly dividend at 8.32 US cents, same as in Q4, and didn’t resume its share buyback programme. Whenever there’s talk of a ceasefire, BP shares wave the white flag.
Also, its upstream production is expected to fall in Q2, due to seasonal maintenance rather than the Middle East, then remain flat across the year. And BP still has plenty of net debt, currently around $25bn.
The long-term impact of today’s crisis is even harder to gauge. While it’s pushing up oil profits today, it may accelerate the long-term shift into renewables. The big oil producers know that, and they aren’t celebrating today’s volatility. There’s also likely to be renewed pressure for an even bigger windfall tax on oil explorers, as the public wrestles with rising petrol and energy prices. Today’s results will only fuel that.
Don’t forget there are dividends as well as growth
Climate change remains another big issue. If the planet continues to warm, political pressure could grow here too. Yet the world is still thirsty for oil, the crisis has shown us that. Not just as fuel, but for food, fertiliser, feedstock, paint, and pharmaceuticals.
With a longer-term view, I think there’s still a compelling investment case here, for investors happy holding oil giants in their portfolio. There’s lots of prospective dividend income too, while the profits surge should give new CEO Meg O’Neill much-needed breathing space, as she sorts out BP’s issues. Let’s hope she uses it well.
BP shares are likely to remain volatile so investors who wish to buy might consider feeding money into the stock, little by little, taking advantage of any dips. Or they could go bargain hunting elsewhere in the FTSE 100. I can see lots of really cheap shares out there today.
