Imagine earning a passive income without even having to get out of bed? Now imagine it’s free of tax. That’s entirely possible, by investing in a Stocks and Shares ISA. So where do you start?
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Earning, say, an extra £18,888 a year entirely free of tax would make a big difference to most people’s retirements. That’s an extra £1,574 of monthly spending money. But how much capital would you need to target that? It depends on the average yield across the investments you hold.
- At a 4% yield, you’d need £472,200 invested.
- At a 5% yield, the required total falls to £377,760.
- At a 6% yield, the figure drops to £314,800.
Could BP shares help get you there?
Those are beefy sums, but it’s a beefy income and should last for life. It’s not impossible to achieve over decades of investing. A diversified portfolio of FTSE 100 stocks offering both share price growth and dividend income can help you work towards that goal. One long-standing favourite is oil and gas giant BP (LSE: BP).
Energy stocks have had a turbulent few years. Russia’s invasion of Ukraine in 2022 drove up the oil price, which then retreated until the Iran war began. BP has been making headlines of its own, beset by boardroom struggles, pushy activist investors, and climate change concerns. Despit all that, the share price has climbed 40% over the last year and an impressive 73% over two.
As the Iran war drags on, where BP shares go from one day to the next is frankly anybody’s guess. As ever with investing, it makes sense to look beyond short-term volatility, and fix your eyes on the far horizon. Despite the shift to renewables, I still think fossil fuels will remain a key part of the energy mix for years. We use them in fertiliser, feed stock, paint, and plastics, and much else besides.
What threats do BP shares face?
Today, BP trades on a modest forward price-to-earnings ratio of just 8.1. The trailing yield is 4.45%. Forecasts suggest that could edge up to 4.75% this year and 4.95% by 2027. Investors don’t just get a solid income, but a rising one. So long as the cash keeps flowing.
The company clearly needs a big overhaul. It may also get distracted by legal action following the controversial departure of its latest chair. But all that will be forgotten if energy prices stay high. Of course, they may not. We may get meaningful peace in the Middle East. I certainly hope so, but I’m not sure it’s the way to bet. The Hormuz blockage won’t necessarily work in its favour. BP’s supplies are being blocked too.
The shift to electric vehicles is another threat. Also, politicians may clobber BP with further windfall taxes. Drilling is dangerous, and a repeat of the 2010 Deepwater Horizon tragedy can never be ruled out.
Personally, I still think BP is worth considering for long-term investors seeking income and growth, as part of a balanced ISA portfolio. They should brace themselves for plenty of volatility along the way though.
Should you invest £5,000 in Bp P.l.c. right now?
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Harvey Jones owns shares in BP.
