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Can this dividend-paying oil stock keep smashing the BP share price?

It seems hardly any time since Gulf Keystone Petroleum (LSE: GKP) was on the verge of collapse, with non-payment by the Kurdistan Regional Government for its oil shipments starving the company of the funds it needed to keep going. It got so bad that the company started its own independent shipments just to get some cash.

But look how different things are today. A payment schedule commenced and has been going as regular as clockwork every month, and with oil prices recovering, Gulf Keystone Petroleum shares have soared 160% since their low point during the depths of despair.

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The price is still nowhere near the levels it was at before the oil price crisis hit and when speculative oil fever was in full swing, but the lesson I take from that is to never invest in oil explorers until you’ve seen the colour of their profits. But it has soundly beaten the BP (LSE: BP) share price over that period, with BP shares really not moving.

Maturing upstart

Anyway, news Tuesday further convinces me there’s a solid long-term investment case for Gulf Keystone.

Revenue for the first half of the year dropped a little, from $116.2m a year ago to $95.6m, with EBITDA down slightly too, from $61.6m to $59m. But that’s from an average production of 29,362 bopd during the half, and it’s expected to ramp up to 55,000 bopd — and we’re already getting close with the first week of September delivering 39,921 bopd.

What perhaps pleases me most is a cash balance at 30 June of $302.7m, which has dropped a little to $263.6m at 9 September as capital expenditure to drive the production increase is under way. That far healthier cash situation than a few short years ago has led to the commencement of dividends, which tends to be a sign of maturity for an oil company.

The firm is also recommencing its share buyback programme, so it clearly sees its own shares as good value now. As do I, even with the added geopolitical risk from Gulf Keystone’s location.

Friendly giant

But what’s BP looking like, with its share price having having barely budged? The past couple of years might not look too great, though since the stock’s low in 2016 during the depths of cheap oil, we have seen a 55% recovery — but the share price is still only just regaining its levels of 10 years ago.

But you know, I really don’t care too much about that, because BP is doing what counts the most, and that’s paying dividends. The annual payment stands at around 40 cents (32p) per share, and that would yield 6.7% on current forecasts. And that, compounded over a decade, would provide a return of 91%. The FTSE 100‘s current forecast yield of 4.5% would, by comparison, result in a return of only 55% over a decade.

Safe hands

I also love BP’s safety aspect. BP came through the Gulf of Mexico disaster and the oil price crash without any real long-term damage, and there’s only a small handful of oil firms that could do that while still providing dependable income for shareholders.

I reckon BP is one of the best dividend stocks out there. But I also see Gulf Keystone as a welcome new entrant in the income investment world.

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Alan Oscroft 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.

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