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Why I’d sell BP plc to buy this dividend darling

An uncertain outlook for oil prices continues to encourage me to stay away from the energy sector, and that includes industry giants like BP (LSE: BP).

While OPEC nations, along with Russia, appear to be committed to keeping a lid on their own oil production, it is the steady ramping up in crude output from countries outside the bloc that threatens to keep Brent values beaten down. And the massive investment major producing nations like the US, Canada and Brazil are throwing into their domestic drilling operations suggests that the current supply glut looks likely to persist.

So while the City expects BP’s earnings to explode to 27.9 US cents per share in 2017 from 0.61 cents last year, and again to 37 cents in 2018, I’m afraid I am not so convinced. And the company’s conventionally-high forward P/E ratio of 23.4 times provides another incentive not to invest, in my opinion.

But while the oil giant’s 6% dividend yield may draw dividend hunters in their droves, I would suggest these investors instead check out a FTSE 250 beauty with which to get their income fix: Ashmore Group (LSE: ASHM).

AUMs continue to boom

The financial services giant announced on Friday that assets under management came in at $65bn at the end of September, blasting through broker projections and soaring from $58.7bn three months earlier.

The uptick was thanks to a combination of positive investment performance of $2.3bn and net inflows of $4.3bn, the firm said.

Commenting on the results, chief executive Mark Coombs noted: “Investors are increasingly focusing on emerging markets and it is encouraging to see strong inflows this quarter.” Ashmore’s head honcho added that the company is well positioned to help investors “address their underweight allocations” to these far-flung destinations.

In another encouraging proclamation, Coombs said: “Emerging markets are continuing to outperform as we would expect at this point in the cycle, with perceived challenges such as rising US interest rates having been anticipated and priced-in.”

The news sent Ashmore to its most expensive since January 2014 above 390p per share.

Expect forecast revisions

The fall in redemptions and improvement in investor demand (net inflows came in at their highest for four years in the last quarter) continues to accelerate over at Ashmore, and this is likely to see the City’s army of analysts revise up their earnings forecasts in the weeks and months ahead.

Indeed, I expect the current 23% bottom-line dip forecast for the 12 months ending June 2018 to look alarmingly out of date by the time the asset manager actually reports just under a year from now. And as such I would consider Ashmore to be a sage stock selection right now despite its slightly-expensive forward P/E ratio of 19.5 times.

Dividend investors should pay particular attention to Ashmore, too. It is expected to lift the dividend to 17p per share from 16.65p in recent years, resulting in a hunky 4.5% yield. And I expect rising appetite for emerging markets to result in increasingly-large payouts in the near term and further out.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended BP. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.