I’m searching for FTSE 100 dividend stocks to buy for market-beating passive income. And based on current dividend forecasts BP (LSE:BP) looks like a great way I could boost my wealth.
The BP share price has leapt in recent weeks thanks to soaring oil values. But even at the current price of 523p its shares offer a higher forward yield than most other UK blue-chip shares.
At 4.3%, the oil major’s dividend yield for 2023 comfortably beats the 3.8% forward average for FTSE stocks.
And things get even better for 2024 and 2025. For these years the yield marches to 4.6% and 4.9%, respectively.
But how realistic are BP’s current dividend forecasts? And should I buy the fossil fuel giant for my portfolio today?
Solid projections
During tough economic periods, dividends from mining and energy companies usually trend lower. This is because raw materials demand can fall sharply as factory activity and global trade flows cool.
Yet unlike industrial metals, prices of oil are shooting higher as concerns over supply disruptions overshadow fears around energy consumption. Brent crude prices recently spiked to 10-month highs above $95 per barrel, spurred by production constraints in Saudi Arabia and further drawdowns in US inventories.
City analysts expect BP to flip back into profit this year on the back of this. This is in line with the oil giant’s pledge to raise yearly dividends by 4% if Brent prices sit above $60 a barrel.
They predict annual earnings to keep rising through to 2025 as well, pulling dividends higher in the process. Last year’s 18.62p per share reward is tipped to rise to 22.59p in 2023, before increasing to 24.29p next year and to 25.61p the year after.
BP looks in great shape to meet these forecasts. Predicted dividends are covered between 3.1 times and 3.2 times by anticipated earnings through to 2025. Any reading above 2 times provides a wide margin of safety.
Should I buy?
Things are looking good for BP and its dividends for 2023. What’s more, the company also looks in good shape to return cash to its shareholders through additional buybacks. It announced plans to repurchase another $1.5bn worth of shares last month.
I’m less convinced about the company’s dividends forecasts beyond next year, given the uncertain outlook for the global economy. But in the current climate more bumper payouts are quite possible.
Yet I’m not thinking about adding BP to my portfolio today. This is because I buy shares with a long-term view in mind. And as the world transitions from fossil fuels to renewable energy and alternative fuels, oil majors like this could find themselves left behind.
In fact this FTSE company has reined-in its plans to cut oil production through the rest of the decade. And in this era of high crude prices — and following the exit of green energy advocate Bernard Looney as chief executive in recent days — the business could double down on its oil and gas operations still further.
Building healthy passive income is about more than buying stocks with large near-term yields. So right now I’d rather buy other FTSE 100 dividend shares.
