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Forget the BP share price and 11.5% dividend yield! I’d rather buy this 7% yield in an ISA

BP (LSE: BP) has emerged as one of the FTSE 100’s stellar performers more recently. The stock market crash saw it plunge to 25-year lows around 233p per share in the middle of the month. But since then, the oilie’s ripped 34% higher to reclaim the 300p marker.

This bounce comes despite oil prices continuing to rattle lower. Indeed, BP’s share price is up again on Monday despite the Brent benchmark losing another 10% of its value on the day. The benchmark has now fallen to two-decade lows below $23 per barrel, and even further falls can be expected if recent forecasts are anything to go by. One body even expects black gold values to plummet as low as $10.

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Danger ahead

So why has the Footsie firm rebounded so strongly? Investors are encouraged by the scale of US production cutbacks in response to Covid-19-related demand drops. They are also optimistic that Saudi Arabian and Russian lawmakers will get back to the table and hammer out a new deal to curb production and kick the prospect of waves of new supply into the long grass.

For half-glass-full individuals, BP certainly looks attractive right now. For them, a rock-bottom price-to-earnings (P/E) ratio of 15.3 times isn’t that demanding from a long-term investing perspective. Its jumbo 11.5% dividend yield for 2020 also draws the eye pretty effectively!

I’m not tempted to buy in, though. Instead, BP’s stock price bounce provides a perfect excuse for embattled shareholders to liquidate their holdings, I believe. A prolonged price war between two of the world’s biggest crude producers is very possible, and threatens to unleash record amounts of oil onto a market already smacked by significant demand destruction.

A better dividend buy

Many out there think that BP’s worth a little short-term pain in exchange for serious long-term gain. This is a trap I’m not prepared to flirt with, however.

Saudi Arabia and Russia might be hogging the headlines today. But investors need to consider the rising threat that non-OPEC+ members like Brazil, Canada, and Norway (to name just a few) present. Fossil fuel investment has ramped up in these regions in recent years, a phenomenon that threatens to create a sea of unwanted oil in the next decade. It’s a particularly dangerous situation as demand for green alternatives grows all around the world, too.

Those looking to latch onto commodities-based stocks would be much better off with Highland Gold Mining. Why? Well in a period of extreme geopolitical and macroeconomic volatility it’s likely that safe-haven bullion prices will hold up much more strongly than those of cyclical raw materials such as oil.

Highland is arguably the most appealing gold stock for dividend investors, too. Its 6.9% yield for 2020 is the largest amongst its UK-quoted peers. Its brilliant value is evident in other ways, too – right now it sports a forward P/E ratio of 7 times.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

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Royston Wild 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.