The Motley Fool

Yield, Yield, Yield Makes Me A Buyer Of BP plc

BP (LSE: BP) (NYSE: BP.US) is a company that I have held for many years, and I think that now could be an opportune moment to increase my stake.

Of course, the last few years have been extremely painful for all BP shareholders, with the company going through a very difficult period after the tragic Deepwater Horizon oil spill in 2010.

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Shares in BP have been volatile and there have been numerous setbacks along the way, notably the claims made against BP by the large number of people and businesses who were affected by the oil spill.

However, throughout this difficult period, BP has continued to pay a dividend. Certainly, it has been reduced significantly over the period, falling from 56 cents per share in 2009 to 21 cents in 2010, with the yield not changing by such a vast amount as shares fell significantly in the aftermath of the oil spill.

The key point for investors like me is that BP continued to yield above the market average throughout this difficult time and now yields a very impressive 4.8%, which puts it among the highest yielders on the UK stock market.

Such a yield is extremely useful to income-seeking investors like me, especially at a time when bank account savings rates are so low and inflation is an ever present challenge.

In addition to a great yield, BP also appears to be generating a relatively generous level of profitability. Indeed, despite being a capital-intensive business (where capital expenditure was greater than operating cash flow last year) BP still manages to generate a return on assets of 3.7%, which in my view is a very impressive figure.

Certainly, BP’s asset base is likely to shrink further in future years (as per its recent announcement) as it fully comes to terms with the scale of compensation claims from the 2010 oil spill. In addition, a shrinking asset base may mean that profits are cut, too, although from a purely profitability perspective (in terms of return on assets) BP should, in my view, maintain a healthy return for shareholders.

However, despite the aforementioned yield of 4.8% and the impressive return on assets generated by the company, BP does not win the prize of The Motley Fool Top Income Share Of 2013.

This accolade instead goes to a utility company that offers a 5%+ yield (slightly higher than BP’s) and an equally impressive return on its asset base. In fact, the team here at The Motley Fool has written an exclusive report that is only available to Motley Fool readers about this star buy.

Furthermore, the report is completely free and without any obligation. In my view, it’s well worth a read and could help you to better stave off the effects of inflation and provide your portfolio with a welcome income boost.

Click here to take a look at the report.

> Peter owns shares in BP.