I believe that BP (LSE: BP) is one of the best stocks in London for income investors. The company has a history of paying out as much to investors as possible, and management has only had to cut the payout on a few occasions in the company’s history.
The last cut was in 2010 when the group had to slash both capital spending and income distributions, freeing up cash to pay liabilities stemming from the Gulf of Mexico oil spill. Since then, BP has tried to keep its payout stable, despite falling oil prices.
Oil pays dividends
After three quarters without dividends in 2010, the company resumed distributions in 2011, paying out approximately 17.4p to investors. This year it is on track to pay out 31p per share, having grown its payout 9.9% per annum since 2011. The shares currently yield around 6%.
The income from BP’s shares has been a significant contributor to returns for the company’s investors. Over the past five years, shares in the oil major have produced a total return of around 7.8% per annum, which is impressive considering the headwinds the business is facing.
BP’s shares might be a great income buy, but the one thing they have lacked over the past few years is capital growth. Indeed, over the past five years, the shares have only returned 14% excluding dividends, underperforming the FTSE 100 by 12% over the same period.
With this being the case, I believe Lamprell (LSE: LAM) could be the perfect stock to buy to sit next to BP in your portfolio.
Capital growth and income
Lamprell is a traditional value stock. Today its shares have plunged to a low not seen since this time last year after the firm issued a profit warning. However, after today’s declines, the shares are trading at a deep discount to tangible book value of around 63%.
Shares in the oil services company are sinking after it warned its 2017 earnings would be “materially below” (usually more than 20% or more below estimates) market expectations because its East Anglia One windfarm project is expected to make a “significant loss” that will be booked in 2017. While this news is disappointing, the firm is well funded with $306m of cash at the end of June, and it has an order backlog equal to around one year of revenue (as at the end of June).
Put simply, even though Lamprell will now miss expectations for this year, the group is well placed to return to growth as the oil industry starts to perk up. And considering how cheap the shares currently are, investors could be in line for a return of 170% if the stock returns to book value.
That said, as a small-cap Lamprell isn’t risk-free. You could make a return of nearly 200%, but this opportunity isn’t for everyone. That’s why I believe BP is a perfect partner for Lamprell in your portfolio.
The fastest way to a million
Dividend champions like BP are essential portfolio picks if you want to get the most from your money.
The company's record of distributing earnings to shareholders means that you can buy, forget and watch your money grow with almost no effort.
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Rupert Hargreaves owns no share menionted. 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.