BP (LSE: BP) shares are a core portfolio holding for many FTSE 100 investors and I’m wondering whether to add them to mine in September.
I haven’t held the stock for years, aside from an ill-judged foray after the Deepwater Horizon disaster.
It’s had a bumpy millennium. Some 20 years ago, in September 2003, BP traded at around 430p. Today, I can buy it for around 490p, just 14% higher.
It’s been a bumpy ride
Long-term investors will have generated plenty of dividends in that period. Yet even they’ve been bumpy, with BP forced to suspend its payout for three quarters after Deepwater, and halving it in 2020 after posting record losses at the start of the pandemic.
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023* | 2024* | |
| BP dividend per share | $0.41 | $0.41 | $0.26 | $0.22 | $0.24 | $0.27 | $0.28 |
In practice, that cut turned out to be a rebasing, as my table shows. Even by 2024, when analysts reckon the dividend per share will total 28 US cents, it will be below 2018’s 41 cents.
I got used to seeing BP shares yield around 6% but that’s fallen to 3.9%, barely above the FTSE 100 average. That is forecast to climb to 4.2% in 2023, with cover of 3.2, but is still disappointing. Especially given how BP shares have enjoyed a double booster from the end of Covid lockdowns and the energy shock.
On the other hand, it has taken a hit from being forced to write off its $24bn stake in Russian oil giant Rosneft after Putin’s invasion of Ukraine. Plus BP has a huge buy-back programme.
Over the last three years, BP shares have climbed a hugely impressive 83.05%. If I’d invested £10,000 three years ago, I’d have £18,305 today. Plus I’d have another £1,200 or so of dividends, lifting my total to around £19,500.
So much for hindsight. Recent BP share price growth has been slower, with the stock up 8.89% over the last year. It still beat the FTSE 100 which grew just 2.60% over the same period.
Where the stock goes next partly depends on macro events such as when the Federal Reserve finally stops hiking interest rates and events in China.
Should I buy it?
OPEC production cuts have kept supply tight, propping up the oil price at around $85 a barrel. It may not climb much higher amid rising spare capacity and economic concerns. BP won’t worry though. It breaks even at $40.
CEO Bernard Looney has disappointed green activists by dragging his feet on net zero. This may be bad for the planet but is probably good for BP, which remains a fossil fuel producer at heart.
It leaves the company vulnerable if renewables get cheaper or we see a massive breakthrough in some clean energy, such as hydrogen. But Looney is gambling that the global economy will run on oil for some years, and it’s hard to dispute that.
I won’t be buying BP in September. Investing is about choices, and I can see better bargains on the FTSE 100 right now. Some yield twice as much and have greater capacity for share price recovery, having underperformed for three years rather than flying like BP.
