Life as a BP (LSE: BP) (NYSE: BP.US) shareholder has been tough in 2014. Shares in the company have fallen by 5% since the turn of the year, as sentiment has gradually declined throughout the year. That?s at least partly because sanctions by the US and EU against Russia could have an impact on BP?s bottom line in future, with the company having a stake in Russian oil company, Rosneft.
However, BP?s long-term future still looks bright and the investment case seems strong. Indeed,…
Life as a BP (LSE: BP) (NYSE: BP.US) shareholder has been tough in 2014. Shares in the company have fallen by 5% since the turn of the year, as sentiment has gradually declined throughout the year. That’s at least partly because sanctions by the US and EU against Russia could have an impact on BP’s bottom line in future, with the company having a stake in Russian oil company, Rosneft.
However, BP’s long-term future still looks bright and the investment case seems strong. Indeed, BP could boost your portfolio and be worth buying right now for the following four reasons.
Due to sentiment being so weak, shares in BP now offer superb value for money. While the FTSE 100 is hardly expensive, with it trading on a price to earnings (P/E) ratio of 13.5, shares in BP trade at a substantial discount. They currently have a P/E of just 9.6, which seems incredibly low and shows that there could be substantial scope for an upward rerating.
Although BP’s profitability looks set to remain volatile over the short to medium term, the company is expected to grow its bottom line in 2015. Earnings per share (EPS) are forecast to be 8% higher in 2015 than in the current year, which shows that BP does have a strong asset base that is capable of improving the company’s profitability over the long term.
Indeed, BP’s asset base, although smaller than pre-Deepwater Horizon, remains diverse, efficient and highly lucrative. This bodes well for investors over the long run.
With shares in BP trading at such a low valuation, it is of little surprise to find that they offer a stunning yield of 5.2%. At a time when interest rates remain at historic lows and savings accounts offer little in the way of a return, a 5.2% yield could prove to be highly attractive to investors. Furthermore, with interest rates set to stay low over the medium term, investors could bid up the share prices of the highest yielding stocks, which could push BP’s shares higher.
Income Growth Potential
However, there could be much more to come from BP as an income play. For example, dividends per share are forecast to increase by 5.2% next year and could move even higher. That’s because BP has a dividend payout ratio of just 49%, which is understandable given the volatility in the company’s bottom line over the last few years.
Looking ahead, though, there is scope for this to increase and still afford the company the financial firepower to invest in new plant and machinery and make investment in other capital items. This income growth potential, along with a top notch yield, low valuation and growth potential, makes BP a strong candidate for investment at current price levels.
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Peter Stephens owns shares in BP.