One way of looking at the BP (LSE:BP) share price is to scroll back on the chart and realise that the stock has been trading in a range between about 340p and 690p for the past 20 years.
Those parameters even include the post-millennium plunge that affected the stock market and BP’s 2010 Gulf of Mexico disaster setback.
A flat performance
If you take a long-term view, the shares have been moving broadly sideways. Dividend investors might argue that capital fluctuations delivered by a company’s share price go with the territory of income harvesting. But let’s not forget that BP also cancelled its dividend for three payments following the 2010 oil-spill disaster.
The dividend hasn’t been progressing. It has been stuck near 40 cents per year for about seven years. And that’s not a good basis for a dividend investment, in my view. I want my dividend-led investments to show revenue, earnings, cash flow, and dividend payments that generally rise a little each year, along with a share price moving higher over the long haul.
And the trouble with BP’s trading record over the past few years is that those measures have all been flat, along with the long-term performance of the share price.
If you go back to the chart and look at smaller timescales, it’s clear that the share price has been moving up and down regularly, which I reckon betrays the inherent cyclicality of the business.
In some ways, I’m surprised at just how responsive the company’s earnings and share price can be to movements in the price of oil and general macroeconomic factors.
A trio of risks
So, to me, BP faces operational risks because it’s in an essentially dangerous business, as the Macondo well blow-out disaster proved. The reparations continue, and the firm made Gulf of Mexico oil spill payments in 2018 of $3.2bn on a post-tax basis. But the firm also faces cyclical risks.
And now I reckon BP is up against a relatively new long-term trend working against its established activities in hydrocarbon production – the rapid approach that governments are taking toward switching economies to renewable energy and away from oil and gas.
In fairness, BP is not sitting back and just allowing its business to become obsolete. There’s an ongoing restructuring programme involving divestments of once-key assets, as seen in the August announcement of an agreement to dispose of its Alaskan operations.
The firm said in the news release that it is “steadily reshaping BP” and will invest in other opportunities “that are more closely aligned with our long-term strategy and more competitive for our investment”.
With the share price close to 516p, the earnings multiple for 2019 is just over 12 and the anticipated dividend yield stands just above 6%. That looks like a reasonable valuation, but I think there are no guarantees that BP shares will remain in their established trading range over the next couple of decades.
I want less cyclicality and more growth in my investments, so I’d ignore both BP’s share price and its dividend yield right now.
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Kevin Godbold has no position in any 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.