I wanted to add a FTSE 100 oil stock to my Self-Invested Personal Pension (SIPP) some 18 months ago, and took a close look at Shell (LSE: SHEL) shares.
Then I bought BP (LSE: BP) instead. This isn’t a slight on Shell. It was, in my view, the better-run operation. So why did I plump for the problem child?
First, its shares were cheaper. The yield was higher (above 6% at the time). My investment term was years, decades, ideally for life. Which gave BP plenty of time to sort itself out and roar back to life, rewarding me for my patience. Unfortunately, BP is now in the headlines for all the wrong reasons. Again.
What’s wrong with BP?
On Wednesday (27 May), BP ousted chairman Albert Manifold with immediate effect due to “serious concerns” relating to “important governance standards, oversight and conduct”. All of which Manifold disputes. I suspect this is going to get messy.
Things have been messy at BP since the Deepwater Horizon disaster in 2010. The ‘Beyond Petroleum’ pivot into renewables flopped. In 2022, it banked a mighty $25.5bn loss on its stake in Russian-owned Rosneft, due to the Ukraine war.
The boardroom looks chaotic, with CEOs Bernard Looney and successor Murray Auchincloss moved on in short order. Including interim appointments, BP has had five CEOs and three chairmen since 2020. The latest issues suggest this might be systemic, rather than bad luck.
So do I regret my decision to buy BP? Not a bit of it. Because since I bought the stock, BP has outpaced Shell.
The BP share price is up around 43% over the last year, compared to 28% for Shell. Dividends have been higher too. I should point out that over five years, Shell smashes BP, up 130% against 72%. So a lot of the recent action was playing catch-up. But my timing has worked so far. Or maybe I just got lucky.
Ultimately, boardroom dramas matter less than the oil price. As the Iran war threatens supply shortages and triggers market volatility, BP’s making money, notably through its trading arm. So is Shell, of course. But the outlook could rapidly reverse, if we get peace in the Middle East.
Could both stocks fall at once?
Despite their strong recent performance, both look reasonable value. BP trades on a forward price-to-earnings ratio of about 7.6. Shell’s only slightly pricier at around 7.98. That’s closer than before. Dividend income is a key attraction for me, and here BP wins. It has a forecast yield of 4.94% this year, rising to 5.16% in 2027. Shell’s forward yield’s 3.7%, edging up to 3.83% in 2027.
I’m happy with BP, even if Shell’s the better-run business. But it’s in desperate need of a strategic shake-up. Also, if the Iran war is concluded and oil prices fall, both shares could soon be heading south.
I plan to hold BP through thick and thin, but I wouldn’t consider buying either stock right now. This remains a cyclical sector, and I’d rather buy when they’re out of favour than riding high. I may get another opportunity in the volatile weeks ahead.
Should you invest £5,000 in Shell Plc right now?
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Harvey Jones owns shares in BP.
