The BP (LSE: BP) share price is smashing the FTSE 100 today (10 February), jumping 8% on news that hedge fund Elliott Investment Management has taken a significant stake in the oil giant.

This is exactly what many investors have been crying out for. There’s a view that BP has lost direction and needs a shake-up as it navigates the green transition. Activist investor Elliott may give it a push.

BP shares have also lacked direction. They’re down 9% over the past year and 7% over five years – despite the energy price spike in 2022.

That’s exactly why I bought the stock a couple of months ago. BP was trading at just six times earnings, with a yield pushing 6%. Even with oil prices under pressure, I thought that was great value. Although I was braced for plenty of short-term volatility along the way.

Can this FTSE 100 stock find its way?

I don’t trade shares based on takeover speculation. I had no idea how the group would unlock value – or who might step in to force change. So, I’ll treat today’s surge as a welcome surprise.

It comes at a time when the oil industry is gearing up for a boom under US president Donald Trump. Many believe BP (and Shell) would be worth far more if traded in New York – or potentially broken up.

Typically, once Elliott takes a stake in a company, it pushes for strategic changes, break-ups or disposals. Investors seem to like the sound of that.

There’s no doubt BP’s share price would be stronger if oil prices were higher, but the big issue remains net zero. Former CEO Bernard Looney pledged to “reinvent” the company and reach net zero carbon emissions by 2050. It backfired – like much of what Looney touched – and forced a pivot back to fossil fuels.

Now the board appears rudderless. Enter Elliott, which is likely to be plotting a new course. As yet we don’t know where.

Dividends and buybacks

BP’s current CEO Murray Auchincloss has been preparing to unveil a new company strategy on 26 February. Now, most of the questions will likely be about Elliott, rather than his plans.

He’ll need to provide some convincing answers, especially with Q4 underlying profits dropping from $3bn to $1.2bn.

Auchincloss has been pushing ahead with a $2bn cost-cutting plan, involving a 5% global workforce reduction and the sale of a refining site in Germany. This comes at a time when the UK government is in disarray over its net zero policies. Energy Secretary Ed Miliband seems keen to shut down the Jackdaw gas field and Rosebank oil field in the North Sea. Press reports suggest that PM Keir Starmer now takes a different view. This kind of uncertainty doesn’t help.

I’m glad I already own BP shares. I can watch events unfold while quietly reinvesting my dividends and waiting to see the impact on the share price. Any share buybacks will be welcome too. They’ve had plenty of those.

The shake-up was coming – and needed. No doubt more share price volatility will follow. I’d just be careful of buying on the spikes, like today’s. This story has a long way to run so investors may want to consider a cautious approach.

The post The BP share price jumps 8% as activist shake-up may loom — time to consider buying? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Harvey Jones has positions in Bp P.l.c. 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.

The BP (LSE: BP) share price has been rising lately, and that’s good news for me because I’ve been busily loading up on its shares.

I decided they were too cheap to ignore, with a price-to-earnings (P/E) ratio of around six. That’s a fraction of the average FTSE 100 P/E of just over 15 times.

At the same time, BP shares offered an unmissable 6% yield coupled with plentiful share buybacks. Typically $3bn a quarter.

The clincher is that the oil price was down in the dumps at around $70 a barrel. If it rose from that reduced base, BP shares would surely follow, and that’s largely what’s happened.

Can this FTSE 100 dividend king fight back?

As I write, Brent crude trades at just over $78 a barrel, although that has slipped slightly from $80 in recent days.

On the face of it, I’ve locked into a top UK blue-chip at a bargain price, and can look forward to years of high and rising dividends. Plus more buybacks and with luck bags of share price growth too.

Sadly, investing isn’t that simple. As with every stock, BP faces a world of risk, only more so.

First, the oil price could drop. If that happens, BP shares are likely to drop too. Anything from worries over peak Chinese demand to oversupply triggered by US President Donald Trump’s “drill, baby drill” energy policy could hit revenues and profitability. As could disappointing global economic growth. Or a shift in Saudi policy. Threats everywhere.

I’m also concerned by reports that big oil producers are borrowing money to fund those share buybacks, as they battle to keep investors happy. That doesn’t seem a sustainable strategy.

BP is still struggling to navigate the energy transition, and has come under fire for cleaving too closely to its fossil fuels heritage. There’s no easy answer here. Pouring money into renewables is costly and uncertain. Sticking to oil and gas is risky too. I’ve no idea what the answer is, but there’s a risk of BP choosing the wrong path.

Stop worrying and reinvest the income

There are broader ‘Black Swan’ risks, such as potential oil spills, Middle Eastern unrest or a breakthrough in alternative energy technologies, such as hydrogen or nuclear fusion.

None of this is easy to predict, in a world that swung from worrying about ‘peak oil’ then ‘peak demand’ and back again, in a matter of years.

Despite these concerns, and the nagging feeling that I’m doing wrong by the planet, I’m sticking with my decision to invest in BP shares.

The risks I’ve listed are reflected in that low valuation. Some of my share price worries are offset by that high yield.

Also, I didn’t have any direct exposure to the energy sector. Since I believe in diversification, that felt like a serious omission. 

I have no idea what will happen to BP next. Nobody does. But I do believe that buying and holding a diversified spread of dividend-paying blue-chips should help me build my wealth in the longer run, so long as I can stand the short-term volatility. And it makes sense to buy when they’re cheap. At today’s low price, I couldn’t resist BP.

The post Have I called the BP share price completely wrong? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Harvey Jones has positions in Bp P.l.c. 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.

I’m on the hunt for cheap shares and happy to get help wherever I can, even if that means calling in the robots. So I asked AI chatbot ChatGPT for its views.

Of course, I know it doesn’t really have a view. It just culls information from the internet. Although in that respect it isn’t so different from the rest of us.

I didn’t see its first stock pick coming. I thought it would choose a couple of FTSE 100 companies whose shares had plunged in 2024 and were dirt cheap as a result. Instead, it came up with Barclays (LSE: BARC). It’s been one of the best performers of all, with the shares up 80% over the last year.

The shares aren’t as cheap as the bot thinks

This highlights a risk of relying on ChatGPT. It based its recommendation on Barclays’ price-to-earnings (P/E) ratio for 2023, which was a lowly 5.1. After the recent surge, it’s now up to 9.5. Investors beware.

However, that’s still comfortably below the FTSE 100 average P/E of around 15 times. And Barclays currently has a modest price-to-book ratio of just 0.5. That’s half the figure of 1 seen as fair value.

It also boasts a diversified revenue stream across retail and investment banking, which includes exposure to the thriving US market. “This provides some resilience against sector-specific downturns”, ChatGPT tells me. 

It’s actually quoting a Motley Fool article there. An old one. ChatGPT’s other ‘insights’ are just blether about the financial services sector being regulated and competitive. So what do I think?

Barclays is a brilliant long-term buy and hold. But after its strong run I don’t think this is the time to buy. The yield’s now down to 3%. I hold Lloyds Banking Group whose shares rose ‘just’ 20% last year. But with a P/E of 7.1 and forward yield of 6%, I think it’s the better pick. I’m only human though, and could be wrong.

ChatGPT’s second stock pick is cheap by anybody standards, oil giant BP (LSE:BP). So cheap in fact that I bought its shares on 14 January at a P/E of just 5.9 times.

I decided BP was an unmissable bargain

The BP share price has been highly volatile in recent years, mostly down to oil price movements. It rocketed after Vladimir Putin invaded Ukraine in 2022, triggering the energy shock, then fell as the West secured other supplies of energy.

Today, Brent crude’s back above $80 a barrel following the Biden administration’s 11th-hour sanctions on Russia, chilly temperatures across the Atlantic and inflation fears.

Markets are watching President-elect Donald Trump closely. He wants the US to get drilling, which should increase supply. Yet Goldman Sachs has warned strict sanctions on Iran could send Brent towards $90. Plus we’re all wondering what OPEC+ might do next.

I’m looking beyond the short-term noise – particularly voluble in the energy sector – and treating BP as a long-term stock to buy and forget. Now looks like a great entry point. Especially with that bumper 5.3% trailing yield and potential share buybacks.

ChatGPT also informs me that “BP must navigate the complexities of the energy sector’s transition and commodity market volatility”, and that’s a fair point. 

The post I asked ChatGPT to name 2 cheap shares to beat the FTSE in 2025. Its first pick astonished me appeared first on The Twelfth Magpie.

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Harvey Jones has positions in Bp P.l.c. and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. 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.

BP (LSE: BP) shares had a bumpy 2024. Measured over 12 months, they’re down 13.5%. Despite the juicy trailing yield of 5.51%, investors are in the red.

That’s largely down to the unravelling energy shock. The BP share price rocketed in 2022, after Russia invaded Ukraine. Last year, with oil sliding towards $70 a barrel, the only way was down.

That doesn’t worry me. The energy sector is more cyclical than most. In fact, herein lies the opportunity. The time to invest in cyclical stocks is when they’re down, rather than up. Which is why I bought BP twice in the autumn.

Can this energy stock fly in 2025?

I’ve had a bumpy ride so far but things are starting to look up, and there could be more to come. Analysts certainly think so.

The 26 analysts offering one-year share price forecasts have produced a median target of 502p. That’s up more than 23% from today. But that’s not the only reward investors might look forward to.

The shares are forecast to yield a handsome 6.55% this year, which is a brilliant rate of income. This leaves investors looking at a potential total return of 30% in 2025. Personally, I’d be delighted with that.

Forecasts are slippery things of course. A longed-for peace deal in Ukraine could knock energy prices, depending on the terms of the deal. As could another year of high interest rates and low economic growth. So could President-elect Donald Trump’s plans to ramp up fossil fuel production. Cheaper oil is usually bad for BP.

Alternatively, Trump could surprise everyone by burying the US-China trade war (an outside bet but it could happen). A Chinese economic revival would drive up demand. Personally, I’ve no idea what’s going to happen. Forecasts are fun but I don’t believe in them.

Cheap as chips and a brilliant yield

So what about BP itself? On 29 October, it posted its weakest quarterly profits since the pandemic due to the oil price slump and narrowing margins in its refinery business. It still made underlying profits of almost $2.3bn for the three months to September 30, beating the $2bn analysts had predicted (see what I mean about forecasts?).

There was good news in there too as newish CEO Murray Auchincloss pledged to maintain BP’s quarterly share buybacks at $1.75bn a quarter. So that’s the third way BP will reward investors this year.

BP shares looking incredibly cheap with a price-to-earnings (P/E) ratio of just 5.8. UK stocks are routinely undervalued these days but that’s way below the average FTSE 100 P/E of around 15 times.

Of course, the shares could get cheaper still if energy prices plunge. Plus BP still has to navigate the green transition. It’s not a complete failure on this front. On 9 December, the board said it was combining offshore wind operations with Japan’s largest power generation company JERA. The new offshore wind entity will be one of the world’s biggest.

I’ll buy more BP shares as soon as I can raise the cash. With a long-term view, I think they’re a no-brainer buy for me. Especially at today’s price.

The post BP shares are forecast to return 30% in 2025 – and they’re filthy cheap with a P/E of 5.8! appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Harvey Jones has positions in Bp P.l.c. 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.

The BP (LSE: BP) share price has had a rough ride in 2024, as it unwinds most of the gains it made during the energy shock.

So rough, that I couldn’t take resist taking advantage of its reduced valuation, and buying the FTSE 100 oil and gas giant in September and again in November.

Sadly for me, the slide continued. Personally, I’m down 7.5% so far but others have it worse. BP shares are down almost 20% over 12 months.

I’m in no way disheartened. BP is a stock I plan to hold in my portfolio for years, and decades, with luck. The energy sector is notably cyclical, and prone to sudden shifts in fortunes. I expect plenty more ups and downs along the way.

This Footsie blue-chip comes with risks

Another reason I bought BP was that I had almost no direct exposure to the energy sector. I’m betting that fossil fuels still have a future despite the pressures of climate change and the green transition. But I’m also concerned that I’m putting myself on the wrong side of that debate.

The world is pouring huge sums into wind, solar, hydrogen and the rest. Coupled with the switch to electric cars, BP could suddenly look like a relic of dirtier times.

Management clearly isn’t ready to look beyond petroleum. That gamble could backfire. It worries me. Yet I don’t think that’s why the shares are so cheap, measured by the price-to-earnings ratio. Stock markets are forward-looking, but not that forward-looking.

BP shares now trade at just 5.93 times trailing earnings. That’s roughly a third of the average FTSE 100 valuation of around 15 times. I thought that presented an unmissable opportunity. Only time will tell if I’m right.

It gives me a superb yield

The share price slump has driven up BP’s yield. Analysts forecast that the 2024 dividend per share of 23.72p will climb to 27p by 2026.

Based on today’s share price of 379.4p, that suggests a forward yield of 7.1%, which is nice going if we get it. So where are the shares heading?

As a £60bn blue-chip, BP is a heavily analysed stock. A total of 26 analysts offer one-year share price forecasts and their guesses produce a median target of 504p. If correct, that’s a stunning increase of almost 33% from today. Combined with that yield, this would give me a total return of almost 40% in 2025. Naturally, I’d be delighted with that. Naturally, there are no guarantees.

Thirty analysts have given BP a stock rating of whom 11 have labelled it a Strong Buy and four a Buy, while 14 say Hold. Only one labels it a Strong Sell.

Broadly, I share their confidence. That’s why I bought the shares.

There are endless risks. How BP fares in 2025 depends on everything from interest rates to Donald Trump to war in Ukraine and the unfathomable workings of OPEC+. I’m looking through all that to bet that in the longer run, BP still has something to sell the world. Today, plenty of analysts seem to agree with me.

The post Here’s the stunning BP share price forecast for 2025 appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Harvey Jones has positions in Bp P.l.c. 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.

I almost feel embarrassed to admit it, but I don’t hold BP (LSE: BP) shares. I don’t hold Shell either. As a result, I’m missing out on a key sector of the FTSE 100.

I did buy BP in the months after the Deepwater Horizon disaster in 2010, before the full scale of the human and economic tragedy had sunk in. I sold at a loss and was glad to get out.

For a while after that, I didn’t want to go anywhere near the oil sector. As well as the Deepwater aftermath, there was all that fuss over peak oil. Apparently, the planet was going to run out of black gold, leaving big oil with nothing left to drill. The shale revolution and new drilling technology gave the lie to that.

I don’t hold this top stock

Next, we had the net zero drive, which forced big oil to make half-hearted noises about pursuing the energy transition. Again, BP seemed doomed. Then Vladimir Putin invaded Ukraine, and suddenly we remembered that the world runs on oil and gas.

As energy prices rocketed, BP shares followed. Which gave me yet another reason not to buy them. As a rule, I prefer to buy shares when they’re out of favour. That allows me to pick them up at a cheaper price, often with a higher yield, and potentially benefit when they recover.

So have I missed out by failing to buy BP? Well that depends. If I’d invested £10,000 in BP shares three years ago, I’d be sitting on a 48% gain. My money would be worth £14,800, with dividends lifting my total return closer to £16,000.

Yet if I’d bought 12 months ago, it would be a different story. The share price is down 15.45% in that time, which would have reduced my £10k to £8,455. Dividends would have lifted that to around £9,600. I’d still be sitting on a loss though.

Commodity stocks are cyclical. In my view, it’s better to buy them when they’re down rather than up. So will the outlook brighten for BP?

It’s still gushing out money

Q4 profits of $3bn beat estimates but still fell sharply on the previous year’s $4.8bn. Annual profits fell too but investors were pleased with a new quarterly $1.75bn share buyback. That was up from the previous buyback of $1.5bn.

In the short term, much depends on where oil goes next. It’s been hovering around $80 for some time, despite Red Sea missile attacks and Saudi Arabian and Russian production cuts aimed at shoring up the price. US production is filling the gap while energy demand has been hit by Europe’s mild winter.

BP shares look good value trading at a forward valuation of just 6.91 times earnings, while 2023’s 4.79% yield is forecast to hit 5% in 2024.

It still carries more than $20bn of net debt, and markets forecast that could hit $27.8bn in 2024. Given annual sales of more than $200bn, I’m not too worried.

If falling inflation and interest rates boost the global economy, that may drive up energy demand but nobody can say for sure. I think the BP share price dip makes now a good time to buy. Which I’ll finally do, as soon as I have the cash.

The post If I’d invested £5,000 in BP shares a year ago here’s what I’d have today appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Harvey Jones 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.

BP (LSE: BP) shares have been on a turbulent journey in the past couple of years. 2022 saw the stock soar an impressive 30%+ as the war in Ukraine saw oil supplies dwindle and demand surge. However, year to date, shares in the oil and gas stalwart have slid 7%.

So, does this dip present an opportunity to buy? And can the BP share price regain the momentum we’ve seen recently? Let’s discuss.

Cash rich

Well, there’s certainly a lot to like about BP shares.

And one example is its dividend yield. The stock offers a yield of 4.6%, which sits comfortably above the average of its FTSE 100 peers. Moreover, the business has made strides to return value to shareholders in recent times, such as the completion of a $2.2bn share buyback scheme in Q1.

Looking ahead, BP’s dividend forecasts also look appealing. The yield is predicted to rise to 4.8% in 2024. And with this covered between three or four times by anticipated earnings, these forecasts look in good shape to be met.

Adding to this, the company’s $2.3bn excess cash in Q1 highlights its ability to generate funds. More widely, after its stellar 2022, BP finished the year with a surplus cash flow of $19.3bn, a $6bn jump from the year prior.

The shares also look cheap, with a price-to-earnings ratio of just 4.2. For comparison, the FTSE 100 average is over three times that.

BP risks

So, BP shares clearly have potential, but I do have my concerns. And there is one major risk that surrounds the company.

The transition to a greener world.

Many investors who factor environmental, social, and governance (ESG) concerns into their investments are already steering clear of the stock. This could heighten in times ahead.

It’s likely that governments across the globe will also begin to place greater pressure on the business. In fact, they already have done so.

And with the company slashing its oil and gas emissions reduction goal from 40% to 25% for the end of the decade earlier this year, it seems that BP may become a target of scrutiny.

Admittedly, I think it will be a long time before the world weans off its reliance on traditional oil and gas. But as a greater number of investors inevitably become more conscious of ESG factors, this could harm the BP share price.

Another potential risk is its debt. Currently, this sits at $21.2bn. And while this has been significantly reduced by nearly $9bn, that’s still a sizeable pile.

Bargain or trap?

I do like BP. But for now, I’ll be avoiding the shares.

Its dividend is certainly attractive. However, I think there’s too much uncertainty surrounding the stock for me to buy it at this moment.

The transition to a greener world will no doubt intensify in the years ahead. And if BP finds itself on the wrong side of this, it could suffer.

It’s on my radar, and if the stock continues to fall, I’ll reassess. But I won’t be biting the buy button right now.

The post BP shares looks cheap. But are they a buy? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Charlie Keough 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.

I don’t directly hold BP (LSE: BP) shares, although I have spent much of this year wishing that I did.

The energy shock has been a nightmare for most of us, but much better news for the FTSE 100 oil giant. Its share price is up 37.72% year-to-date, easily outstripping the index as a whole, which has fallen 4.71% so far in 2022.

Yet investing is cyclical, and I’m always reluctant to buy a stock when its high and rising. All good things come to an end, and all that.

BP shares are flying

Despite its success, BP doesn’t look particularly expensive. It currently trades at 14.9 times earnings. Once forecast earnings are entered into the calculation, the P/E falls to just four times. This reflects how quickly its revenues are rising at the moment.

On Monday, BP reported Q3 underlying replacement cost profits of $8.15bn, a rise of 145% from last year’s $3.32bn. This marked a slight drop on Q2’s $8.45bn but with a barrel of Brent crude hovering just below $100, the revenues should continue to roll.

Success brings enemies, however. Calls for a more punitive windfall tax on ‘excessive profits’ have redoubled. Activists are now calling for shareholder buybacks to be taxed, as BP returns $2.5bn to shareholders in this way.

Chancellor Jeremy Hunt is drawing up plans to slash spending and raise taxes, ahead of his autumn statement on 17 November. With a £30bn fiscal black hole to fill, FTSE 100 oil companies could be on his hit list. Yet so far investors do not seem worried, with the BP share price edging up another 4.48% in the last week.

BP also stands accused of failing to make a fast enough shift towards renewables. Activist pressure will intensify here, too. CEO Bernard Looney talks of striking a balance between “providing the oil and gas the world needs today while at the same time investing to accelerate the energy transition”. It seems to me that the former remains a higher priority than the later. BP could do more, but I’m not underestimating the challenges, either.

It isn’t easy going green

BP faces three main threats. Oil prices could fall. Taxes could toughen. And it needs to raise its green game. My fear is that we are witnessing peak BP, for the current cycle at least. The company carries net debt of $22bn, but that seems a minor worry today. As CMC Markets points out, it is using 60% of its surplus cash flow for share buybacks, and only 40% to strengthen the balance sheet.

The FTSE 100 is packed full of top stocks offering yields of 6%, 7%, or 8%. BP’s yield looks modest by comparison, in part because its share price has climbed this year, rather than fallen. Right now, it offers a forecast yield of 4.4%, covered a ridiculous six times by earnings.

I’d like to include BP shares in my portfolio, yet I am wary about buying them today. I don’t expect BP to crash, but further upside may be limited.

Instead, I will wait until investors hate BP, along with all those angry activists. That will be a safer time to buy.

The post Are BP shares about to crash?  appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

What a year it has been for the BP (LSE: BP) share price. Year-to-date, the stock is up 45%. It’s all a far cry away from a couple of years ago when the oil price turned negative and it was sitting on heavy losses. As an existing shareholder, it has been one of my best performing shares. However, as recession fears grow, is the party about to come to a spectacular end?

Surging free cash flows

When it comes to cash flows, oil stocks are in a class of their own. In their Q3 results released today, BP reported surplus cash flow of $3.5bn. For the first nine months of the year, it reached $14.2bn. This is over 300% higher than the same period last year.

Underlying profit was $8.2bn, slightly down on the record figure last quarter. This reflected lower oil prices, which averaged $101 for the quarter.

BP continues to use a significant portion of these profits to bring down its net debt. I believe this is a very prudent strategy as it reduces interest expense at a time when interest rates are rising.

Shareholder returns

One of the primary reasons why I invest in BP is for passive income. Last quarter it raised its dividend per share by 10% to 6.006 cents. Although it didn’t raise it this quarter, the dividend yield is still a respectable 4.2%.

The company remains committed to allocating 60% of free cash flow to share buybacks. Over the next three months it intends to buy back another $2.5bn of its own shares. So far this year it has announced buybacks of $8.5bn. With a smaller issued share capital, existing shareholders will end up owning a larger proportion of the company.

BP is undervalued

Despite its significant share price appreciation, I still believe that BP shares offer tremendous long-term value.

Clearly, BP does face some short-term headwinds. There is increased uncertainty about how demand for oil will hold up should the economy go into recession. Demand is also being affected by ongoing lockdowns in China.

However, what makes me extremely confident about BP over the longer term are underlying structural factors related to the supply of oil.

In the decade leading up to the global financial crisis, oil prices rose to $150. In response, more and more demand came online. Today, the macro set-up is totally different.

Since the shale boom of 2014, the oil industry has suffered from a severe lack of underinvestment. Several factors are likely to ensure that this remains the case for several years.

First, increasing calls for windfall taxes makes oil companies nervous about investing. Second, as interest rates rise in a bid to cool inflation it becomes a double-edge sword. Yes, it reduces demand; but the increase cost of capital hits exploration budgets. In response, oil companies cut back on much-needed long-term investment.

There is no magic bullet for solving the energy crisis. Until structural forces holding down supply are resolved, the medium-term outlook, in my view, remain rosy for BP. That is why I continue to add shares to my portfolio on a regular basis.

The post At a year high, can the BP share price keep rising? appeared first on The Twelfth Magpie.

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Andrew Mackie has positions in BP. 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.

More people are working beyond 65 than ever before, but I would like to have the opportunity to retire early if I can. The only way I can do that is to save enough money for a sustainable retirement income, and I reckon FTSE 100 shares are a great way to do that.

In recent years, US tech stocks have grabbed the limelight. That is now going into reverse as investors wake up to the charms of the FTSE 100, as UK blue-chips offer a solid, steady income stream from dividends. That’s what I need to retire early.

Despite this year’s volatility, the index has escaped the stock market crash. It trades at a similar level to the start of the year. By contrast, the S&P 500 has fallen more than 20% year-to-date, and is in a bear market.

I’d retire early on these stocks

Yet a whole heap of FTSE 100 stocks are trading at cut-price valuations, while also paying hugely generous dividends. Better still, many of these dividends are comfortably covered by earnings, which makes them relatively secure.

One stock that jumps right out at me is insurer Aviva. It generates solid cash flows, year after year, from selling pensions, protection and general insurance. Yet it habitually trades at a low valuation. Right now, I can buy it at just 7.8 times earnings. Better still, this will give me a staggering income of 8.7% a year, covered 1.5 times by earnings.

Dividend income is never guaranteed. Aviva suspended its payout during the pandemic, although quickly restored it. Management knows how important the dividend is to shareholders, and will be reluctant to cut again except in extreme circumstances. The £13bn group recently reported “continuing momentum” in the six months to 30 June. Interim operating profits rose 14% to £829m. It looks steady enough for me.

The Aviva share price has not moved much over the years, although it has jumped 13% over the last 12 months. Over five years, it’s down 9%. I’m not buying Aviva shares for growth though. I’m sure that will come over time, but income is my main goal and this stock offers that in spades.

Oil giant BP is my second income pick. It is slightly more expensive than Aviva, trading at 13.7 times earnings. That is hardly surprising given that its share price has rocketed 47.75% over the last year. Five-year performance is less impressive at just 1% though.

I’m buying FTSE 100 dividend income shares

BP now faces the huge challenge of transitioning from fossil fuels to renewables. Like Shell, it has only made tentative steps so far. The energy crisis has shown that the world still needs plentiful oil and gas during this year’s energy crisis, but management cannot rely on that continuing forever.

While acknowledging the risks, I’m backing BP to make the leap. Frankly, management has no choice. But this doesn’t have to happen overnight. The income looks rock solid at the moment. BP’s forecast yield of 4.4% is covered a stunning six times by earnings. Usually, two times is seen as comfortable.

I’m now scraping together some cash to go shopping for shares, and when I have it, these two will be at the top of my list. My plans to retire early depend on them.

The post I’d buy these 2 FTSE 100 stocks to help me retire early in comfort appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Harvey Jones doesn't hold any of the shares mentioned in this article. 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.