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Worried about the State Pension? I’d buy FTSE 100 income stock BP in an ISA today

The oil price may be struggling to break the $65 a barrel mark but that isn’t troubling FTSE 100 behemoth BP (LSE: BP), which is up 3% at time of writing after a bullish set of second-quarter results.

Pump it up

BP beat market expectations by reporting that underlying second quarter replacement cost profit held firm at £2.8bn, even though oil prices are down on the same quarter last year.

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The £108bn blue-chip offset the damage by pumping up production and launching four new major projects in the first half, including Culzean in the North Sea.

Management hailed continued good operating performance”, with operating cash flow of $8.2bn for the quarter ($6.8bn after Gulf of Mexico oil spill payments), against capital expenditure of just $3.7bn. Upstream and downstream performance were both solid, while reported oil and gas production averaged 3.8m barrels a day of oil equivalent, up 4% on a year earlier.

BP also highlighted its growing low-carbon businesses, including a new Brazilian biofuels and biopower joint venture, and a $30m “venturing investment” in Calysta, which will use BP’s natural gas to produce protein feed for aquaculture and agriculture.

Cashing in

There was a sharp increase in net debt, which hit $46.5bn on 30 June, up from $38.7bn a year ago as gearing hit 31%, up from 27.5%. Given the rate of cash generation, this is unlikely to trouble investors, although I would like to see BP working its debt pile down, in case the oil price slips again.

BP announced a dividend of 10.25 cents a share for the quarter. The stock now offers a forecast yield of 6.3%, way above the FTSE 100 average of 4.3%, covered 1.3 times by earnings.

Shareholder rewards

Rupert Hargreaves recently picked out the BP share price as his top FTSE 100 buy for those wanting steady blue-chip income, one that has returned tens of billions of dollars to investors via dividends and share buybacks over the past few decades. Shareholder returns could be ramped up if the oil price returns to $100 a barrel – although that’s a big if.

We could see a price spike if the Iran crisis intensifies, Roland Head says, but he warns tensions could quickly unwind, while a slowing China and global economy could send oil lower instead.

BP is at the midpoint of its five-year plan to raise production and margins to industry-leading levels, and group CEO Bob Dudley said it is “right on target”. He added: Reliable performance and disciplined growth across our businesses are delivering strong earnings, cash flow and returns to shareholders.”

Dollar delight

Macro shocks notwithstanding, things look set fair for BP after today’s results. The dividend is nicely funded, lower oil prices have done minimal harm and ongoing Gulf of Mexico costs are funded.

Forecast double-digit earnings growth of 13% this year and 19% next look promising. They are priced in dollars and will therefore benefit from the pound falling to a 30-year low against the greenback on Boris Johnson’s no-deal drive. BP is in a good place right now.

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Harvey Jones has no position in any of the shares 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.