If you’re looking for steady blue-chip income, I don’t think you can go wrong with the BP (LSE: BP) share price.
Compared to other stocks, this company really stands out to me as a high-quality income buy. For a start, BP’s track record of returning cash to investors is impeccable. Between 1993 and 2010, the firm’s per share dividend to investors increased from only a few pence per year to 36.4p, a compound annual growth rate of 21% per annum.
Unfortunately for income seekers, after the Gulf of Mexico disaster in 2010, BP had to eliminate its dividend and use the cash to meet liabilities stemming from the catastrophe. But after a year of conserving cash, the company resumed dividend payouts in the first quarter of 2011, starting with a quarterly payout of 4.4p. It has since increased that to 8p per quarter, or around 31p per share, per annum. At the time of writing, shares in BP support a dividend yield of 5.8%.
Hefty cash returns
These dividend numbers exclude other cash returns to investors BP has commissioned over the past two decades. For example in 2013, the company announced it would be returning a total of $8bn to shareholders following the sale of its 50% interest in TNK-BP to Rosneft. Management also announced plans to buy back $1.6bn worth of stock in 2017 in order to offset the dilutive effect of the scrip dividend programme.
As well as returning tens of billions of dollars to investors via dividends and share buybacks over the past few decades, BP has also invested billions in its operations, maintaining oil production and output across the group.
Even when the price of oil crashed in 2014, the firm continued to spend, although it increased its spending discipline substantially. These investments have helped the company continue to grow when many of its smaller peers have started to struggle. As a result, BP is just as strong today as it has ever been, even though the price of oil is still weak.
Going forward, I think this trend is going to continue. BP will continue to invest in its operations, developing the company for the future, while at the same time maintaining its cash return policy, and possibly even ramping up cash returns to shareholders if the price of oil returns to $100 a barrel.
However, despite the company’s bright outlook, shares in BP are currently changing hands at what I believe to be a discount valuation of just 12.7 times forward earnings.
In my opinion, the stock deserves a higher valuation, especially considering the company’s historical track record of cash returns and growth. International peer Chevron, for example, is currently dealing at a forward P/E of 16.8.
With this being the case, not only does the BP share price offer a market-beating dividend yield of 5.8%, but it also looks undervalued compared to its international peers. That’s why I think the BP share price is a top FTSE 100 buy right now.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.