If you are on the hunt for dirt cheap FTSE 100 shares, these two look tempting buys, provided you take a long-term view.

The Pearson (LSE: PSON) share price is the fastest climber on the FTSE 100 this morning, leaping 12% on reports that activist investor Cevian Capital has bought a 5.4% stake in the education company. It has spotted “numerous operational and strategic opportunities to maximise shareholder value,” following years of struggle and disappointment.

Benefit from the stock market crash

Pearson’s stock was in long-term decline following a series of profit warnings, and is down 65% over five years. Its US educational business has been hammered by the shift from print to e-books. When I last examined the stock in February, I was in no rush to buy. Today’s positive news and its dirt-cheap stock price change that.

The group is looking for a new chief executive to replace the departing John Fallon, who was in the post for seven years. Stockholm-based Cevian wants a say in his successor. Investors are hoping this marks the start of a turnaround, but overhauling the company will take time.

I love dirt-cheap FTSE 100 stocks

In February, I questioned the wisdom of Pearson’s planned £350m share buyback. That has now been suspended but the group stood by its final dividend in April, and currently yields 3.38%.

It is offering free online digital courses for the furloughed and self-employed, hoping to boost its crucial online learning division in the longer run. A post-pandemic shift to digital learning could power sales and offset declines in its traditional business. Success is never guaranteed, but this dirt-cheap FTSE 100 opportunity is worth a closer look.

I’d buy into the Informa share price

Today, events and information group Informa (LSE: INF) warned revenues could fall by almost a third in 2020, with £300m worth of events cancelled. In normal times, that would have sent the Informa share price tumbling, but today it is up 10%.

Investors were encouraged by reports that events are picking up in China, with second-half trade show activity encouraging. The FTSE 100 group cautioned that lifting restrictions will be “patchy and slow” though. Its biggest market, the US, is unlikely to restart until September.

Investors have been cheered by news that Informa has identified £400m of cost savings, due to cancelled events and its pay and recruitment freeze. Its subscriptions and drug development operations are doing well, confirming my faith in this affordable FTSE 100 stock opportunity.

The group has also scrapped its dividend while strengthening its balance sheet by raising £1bn from shareholders. I regularly urge investors to buy top FTSE 100 stocks that have fallen hard in a stock market crash. Well, here’s one. Informa’s share price is 44% down this year and looks a top long-term buy and hold to me.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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.

That’s not a problem with these two stock picks, both of which have posted barnstorming share price growth over the last five years. Especially my first pick.

Melrose Industries

Melrose Industries (LSE: MRO) is one of those unglamorous blue-chips that private investors can easily overlook, to their cost. It has grown into a company worth £10.83bn by purchasing underperforming manufacturing businesses, then working hard to turn things round. It’s probably best know for its recent takeover of GKN.

Melrose aims to revive its acquisitions and sell them at a profit, then return the proceeds to shareholders. It only floated on AIM in 2003, but since then has posted an average shareholder return of 25% a year, and created £4.8bn of shareholder value.

The share price is up an astonishing 352% over the last five years, against a rise of around 14% across the FTSE 100 as a whole. Despite this, it trades at a relatively modest 16.7 times forward earnings, roughly similar to the valuation for the index as a whole.

This is a growth stock rather than an income play, although it does yield 2.2% a year, covered 2.7 times. You also have to brace yourself for lumpy profits, which can bounce around depending on the timing of acquisition and sales.

That makes it very difficult to look at one set of company results and gauge the underlying trend. However, Melrose now has 16 years of storming success under its belt, which is an impressive track record for any company.

Informa

Exhibitions, events and business publishing group Informa (LSE: INF) can’t match that level of share price growth, but it’s nonetheless up 77% over five years, way ahead of the index. It has nudged higher today after reporting continued growth in revenue, adjusted profit, earnings and cashflow, with full-year group revenue on track to hit 3.5%.

Underlying revenues grew 2.8% in the 10 months to 31 October, and that’s ahead of its key November-December trading period, which is seasonally stronger. Informa has been enlarged by its recent tie-up with UBM, and is now a £10bn company with a global reach in the knowledge and information economy, including professional, commercial and academic.

Recent growth came despite two “impacts”, in Dubai and also Hong Kong, where civil protests have slightly dented revenues. Informa also issued a new €500m bond to strengthen its balance sheet and lower the overall cost of debt and extending average maturity to 5.5 years. Its debt recently doubled to £2.68bn, roughly a quarter of its market-cap, but is not a major concern.

Informa currently trades at 15.9 times forecast earnings, which means it’s fractionally cheaper than the FTSE 100 as a whole, despite its dramatically superior share price performance. The forecast yield is 2.9%, covered 2.2 times, so this one is also primarily a growth play.

Things look solid if not spectacular on that front, with earnings expected to climb 3% this year and 5% next. A solid company for challenging times.

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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.

Going up!

Full marks to Rupert Hargreaves, who saw the opportunity in December when he wrote that time is running out to buy this FTSE 100 dividend stock at a bargain price. 

The Informa share price is up more than 5% this morning after a bouncy half-year report to 30 June, which showed revenues up 47.1% on a reported basis, although that is flattered by its recent UBM acquisition and the underlying increase is just 3.4%.

The enlarged group delivered £306.4m of enhanced free cash flow, more than doubling last year’s £131.1m. Management has been whittling down debt to make the balance sheet more efficient, reducing it from 3.1x EBITDA to 2.7x over the year.

Not so cheap now

Group CEO Stephen A. Carter said a year on from the UBM acquisition the enlarged Informa Group is “performing to plan, delivering a further period of growth in revenue, adjusted operating profit, free cash flow and dividends”.

The obvious downside with buying this £10.6bn company today is that it’s no longer a bargain trading at 16.5x forward earnings. The forward yield is relatively low at 2.8%, although cover of 2.2 gives scope for handsome progression, as we saw in today’s 7.1% interim dividend hike.

Earnings growth has been steady at mid-single-digits for the last five years and this looks set to continue, City analysts say. No longer a bargain, but still a buy.

At your convenience

Payment processing firm PayPoint (LSE: PAY) is also up today after reporting a 3.6% rise in group net revenue to £28.7m, although the stock moved by a less spectacular 1.66%.

The £628m FTSE 250 group operates a network of payment terminals in local stores and corner shops, and is trying to broaden its convenience retailer offering. Today’s trading update reported 30.7% service fee growth of £700,000, driven by a 2.8% service fee hike and the rollout of PayPoint One to 13,633 sites at 30 June, which puts it on track to reach its year-end target of 15,800.

However, ATM net revenues dropped 8.4% to £3m due to LINK’s 10% interchange fee cut and a 3% fall in transactions to 10.4m.

To the point

CEO Patrick Headon nonetheless hailed “a good financial and operating performance” as new initiatives drive future growth and profits, and declared his confidence that there will be a progression in profit before tax and exceptional items for the year to 31 March 2020.

Some 99% of the UK population is within a mile of a PayPoint terminal, and the forecast valuation of 13.9x earnings is tempting, while the forecast yield is now a blockbuster 8.7%. Cover is thin at 0.8 but the business has a net cash cushion of £36.1m.

The PayPoint share price has underwhelmed in recent years, and is down another 12% over the last month, possibly because it has been caught up in the Neil Woodford debacle. The stricken star went big on this stock but has sold roughly half his 20% stake in recent months. PayPoint’s long-term prospects remain promising, despite that.

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A world leader

Last year, the company acquired rival UBM, boosting sales by more than a third and doubling the group’s market capitalisation.

The deal was part of management’s plan to diversify the group, moving it away from publishing, where revenues have been coming under pressure due to the increasingly volatile advertising market, into exhibitions and events, where earnings are much more predictable.

And the shift already seems to be paying off. The company is on track to increase earnings per share by 38% this year, according to City analysts, and net profit could hit £655m, nearly double the level reported for 2017.

The dividend is also expected to increase, although analysts are only forecasting a conservative 5.6% rise. Based on these estimates, the stock supports a dividend yield of 3% and is covered 2.2 times by earnings per share, leaving plenty of room for growth in the years ahead.

Growth champion

I would also recommend Smurfit Kappa (LSE: SKG) for your portfolio if you’re trying to build a second income stream with dividend stocks.

One of the world’s leading producers of paper-based packaging products, Smurfit has more than doubled its dividend in the past six years as earnings have charged higher. Analysts believe the company will earn €686m in 2019, or €2.90 on a per-share basis, up from 2013’s figure of €1.1 per share.

As earnings have increased over the past six years, Smurfit’s management hasn’t rushed to increase the company’s dividend, which is a good sign, in my opinion. Today, the stock supports a dividend yield of 4.1%, and the payout is covered 2.8 times by earnings per share. That allows for plenty of headroom to increase the dividend in the years ahead, and providing a cushion if earnings start to decline.

On top of its attractive dividend credentials, the stock also looks cheap at current levels. It’s currently dealing at a forward P/E of just 8.6 compared to the market average of 12.6.

A strong balance sheet

The last income stock I’m going to recommend is Anglo American (LSE: AAL). The mining group has been through a rough patch over the past five years. In 2014 and 2015, earnings collapsed, and the company was forced to eliminate its dividend in 2016 to shore up the balance sheet.

Management then undertook a massive reorganisation programme and today, it’s now an entirely different beast. Net debt has fallen from nearly $12bn in 2014 to just $2.4bn at the end of 2018 and, in 2017, management reinstated the dividend at $1 per share. Profits have also returned. Last year, net income hit $3.5bn.

With net gearing down to just 10.2%, City analysts are expecting management to hike Anglo’s dividend to shareholders by 23% this year. The increase would leave the stock supporting a dividend yield of 5%. And even after this growth, with analysts predicting earnings growth of 41% for 2019, the distribution would be covered 2.4 x earnings per share, leaving plenty of room for growth in the years ahead.

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Rupert Hargreaves owns no share 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.

By contrast, a number of FTSE 100 stocks offer inflation-beating yields and the potential to deliver rising dividends over the coming years. Here are two prime examples that could be worth buying today and holding for the long run.

Informa

Exhibitions, events and publishing company Informa (LSE: INF) released a positive trading update on Friday. It has performed in line with expectations in the first four months of the year, with trading across its brands as anticipated.

The company is expected to post a rise in net profit of 8% in the current year. This could lead to a faster pace of growth in its dividends, expected to be covered 2.3 times by profit in the current year.

Clearly, Informa’s business could be negatively impacted by the escalation of the trade war between the US and China. As a global operator which is also relatively cyclical, its financial performance may have a higher correlation to the macroeconomic outlook than some of its FTSE 100 peers.

However, with the stock trading on a price-to-earnings (P/E) ratio of 15, it seems to offer fair value for money given its track record of consistent profit growth and its improving financial outlook. While its 2.9% dividend yield may be relatively low, dividends could well grow rapidly in the long run.

Carnival

Cruise ship operator Carnival (LSE: CCL) has fallen out of favour with investors over the last year. Its shares have declined by around 19%, with weakness across the travel and leisure industry a key reason for this.

The company could also face increasingly difficult trading conditions. Consumer confidence in the US and other key markets has been weak in recent months, while the impact of tariffs on disposable incomes could mean spending on discretionary items also comes under pressure.

Although the company is expected to post flat net profit growth in the current year, it’s forecast to deliver a rise in earnings of 11% next year. Alongside a P/E ratio of 11.3, this suggests the stock could offer good value for money after its decline in the last 12 months.

Since Carnival currently yields 4%, it has an appealing income return. However, with dividends covered 2.2 times by profit and expected to rise by over 8% next year, its potential to offer an improving income return seems high. As such, it could be worth buying for the long term while investor sentiment towards the company is relatively weak.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. 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.

Selling up, moving on 

Last year, the company announced it would be selling Costa Coffee to American drinks giant Coca-Cola for a grand total of £3.9bn. Management is planning to return the bulk of this cash to investors and reinvest the rest back into the business. So far, management has declared £2.5bn will be spent buying back shares. 

Cash left over is earmarked for the development of the company’s Premier Inn brand. Long term, the firm reckons this could add an additional 170,000 rooms in the UK and around the rest of the world, more than doubling the number the group currently operates. 

Management is also hoping to reduce operating costs across the group by around £220m per annum over the next three years.

These growth ambitions suggest Whitbread’s earnings are going to grow substantially over the next five-to-10 years, which should translate into dividend growth. Historically, the company has paid out around 50% of earnings per share in dividends. That suggests that while the stock’s dividend yield of just 1.9% might not look particularly attractive today, I reckon there’s a good chance it could double or triple during the next decade.

Slow and steady

Informa (LSE: INF) has similar attractive dividend qualities. This publishing and data analysis business flies under the radar of most investors because it isn’t a particularly exciting enterprise. However, it has grown steadily over the past decade, and shareholders have seen the value of their investments grow four-fold since 2009.

The stock currently supports a dividend yield of 3%, below the market average, but the payout is covered 2.2 times by earnings per share. That tells me there’s plenty of headroom for further dividend growth.

What’s more, the company’s earnings per share have more than doubled over the past six years. If it can maintain this rate of growth, I see no reason why the annual dividend could not double by 2024, rising from 23p per share to 46p — giving investors buying today a dividend yield of 6.1%. 

Shares in the business are currently dealing at a forward P/E of 14.7 which, once again, doesn’t seem too expensive compared to the company’s historical growth.

Hard times 

The final FTSE 100 dividend stock I think you’d be crazy not to buy is Reckitt Benckiser (LSE: RB). Reckitt is one of the world’s largest consumer goods companies, which means it’s one of the most defensive businesses investors can buy today. 

Even though the stock has lost around a third of its value over the past two years, fundamentally it’s strong, and analysts have pencilled in earnings growth of 1.1% for 2019, and 6% for 2020.

This rate of growth isn’t as fast as it has been, but considering the headwinds the company is facing, particularly disruption at its baby formula business, it’s impressive. Over the past six years, earnings per share have increased by around 50%.

The shares currently yield 2.8% and the distribution is presently covered twice by earnings per share. This leads me to conclude the payout is sustainable and has plenty of room to expand over the next few years.

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Rupert Hargreaves owns no share 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.

Positive reports

Does this disparity offer a buying opportunity? Or should you look at another FTSE 100 company that has had a stickier year but whose results have enjoyed a more positive reception from the market? I’m talking about business information group Informa (LSE: INF).

So why have investors sunk Admiral after it announced a record group profit before tax of £479.3m for 2018? Especially since that’s an impressive 18% climb on last year. As group CEO David Stevens said today, the results are characterised by some “yes, but’s.“

High yielder

There are all sorts of juicy numbers in there, with group revenues up 11% to £3.28bn and group customers up 14% to 5.24m. Admiral also offers a 56% return on equity, up 2%. It’s passing on the rewards to shareholders, with the full-year dividend up 11% to 126p. It now yields more than Lloyds Banking Group.

Stevens pointed out that those record profits and dividends were boosted by the UK government’s decision to partially unwind the change in the Ogden discount rate from a couple of years ago, used to calculate insurance payouts. Growth was strong, but Admiral’s core UK motor business slowed in the second half, as rising claims costs forced it to make pricing less competitive.

Confusion

Admiral also owns comparison site Confused.com which grew in the UK, but its US cousin is struggling as rivals up their advertising spends. Analyst growth forecasts look patchy, pencilling in 5% for 2019, but a 1% drop in 2020. The forecast yield is now 6.2%, covered just once although, as we saw today, management policy is progressive. I’m just a bit disappointed by its slightly high valuation, at 16.4 times forward earnings. Admiral’s a ‘yes, but’ stock for me, too.

Informa has been mostly ‘buts’ over the past six months with its stock trailing steadily down. Today, it’s up 2% after full-year 2018 results showed 34.9% reported revenue growth to £2.37bn, boosted by its UBM acquisition six months ago. This falls to a solid 3.7% on an underlying basis. 

Underlying adjusted operating profit growth was 2.3%, while adjusted diluted earnings per share rose 7% to 49.2p.

Well informed

Group CEO Stephen A Carter hailed “a fifth consecutive year of improving growth, increasing adjusted profits, adjusted earnings per share, cashflow and dividends.” The group is now focusing on consolidating its market positions and further reducing complexity, while “creating attractive opportunities for incremental growth and returns.”

Informa’s valuation is more tempting at 13.6 times forward earnings, especially given that its shares have rarely changed hands for less than 20x forward earnings over the past five years. Earnings estimates look promising with 7% growth forecast in 2019, and 6% the year after. The yield is relatively low at 3.3% but dividend growth has been progressive, and that should continue with cover now standing at 2.2. On average, it grows at 7.7% a year. I’d buy it before Admiral.

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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.

However, I believe in some cases, investors have overshot the mark, pushing shares in high-quality businesses down to underserved valuations. Today, I’m going to outline two such companies — income stocks with enviable track records that look too cheap to pass up after recent declines.

Beating the market

If you had invested £1 in packaging producer DS Smith (LSE: SMDS) 10 years ago, it would be worth £12.60 today. A similar investment in the UK All Share index would be worth just £2.60.

DS has gone from strength to strength over the past decade as the company has grown organically and through acquisitions. Net profit has risen 250% since 2013, and I expect this trend to continue as the firm builds on its position in the global packing industry.

The market, however, seems to think otherwise. Since the beginning of October, the stock has lost around 30% and it now changes hands for just under nine times forward earnings — its lowest valuation in five years.

Personally, I reckon that now could be the time to make the most of this rare opportunity and snap up shares in DS at a bargain price. Analysts are expecting earnings per share (EPS) to expand a total of 19% over the next two years, and this growth should help draw investors back to the stock, in my view. 

While you wait for a recovery, shares in DS support a dividend yield of 4.6%, projected to rise to 4.9% next year. The distribution is covered 2.3 times by EPS, according to City numbers.

Hiding in plain sight 

Another FTSE 100 dividend bargain that looks to me as if it’s been unfairly punished by the recent sell-off is Informa (LSE: INF).

The business intelligence and events business has seen the value of its shares fall by 17% since the end of July. After these declines, the stock is now trading at a forward P/E of 15.3, according to average analyst estimates. Granted, this is slightly above what I would consider to be an appropriate price for the stock. But considering the fact that shares in Informa have rarely changed hands for less than 20x forward earnings over the past five years, I think this is a bargain. On top of the attractive valuation, investors are also entitled to a 3% dividend yield, set to rise to 3.2% next year, according to City numbers. 

Informa is what I would call a dividend dog. The company might not have the highest yield around, but it has a record of steadily increasing the distribution through all environments. Between 2008 and 2010 for example, when the rest of the world was trying to fight the worst financial crisis since the Great Depression, Informa increased its dividend to investors by 40%. 

Over the past 10 years, the firm’s dividend has grown at an average annual rate of 7.7%. And it looks as if this growth can continue for the foreseeable future, as the payout is covered 2.2 times by EPS at the time of writing. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended DS Smith. 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.

Since hitting its record closing peaks of 859p per share back in July, the FTSE 100 share has seen its market value sink 14%. This is something of a mystery in my book, particularly since City analysts have been frantically upgrading their earnings forecasts since the spring, in response to the media mammoth’s strong trading statements in that time.

More fool those sellers, I say. With Informa currently dealing on an undemanding forward P/E ratio of 15.3 times, I reckon now’s a great time for investors to nip in and grab a bargain.

A true showstopper

Latest trading details uncorked last week have shown why a material re-rating of the company’s shares is long overdue. Informa declared that trading had remained in line with expectations during the 10 months to October, with underlying revenues having risen 3.9% in the period.

The macroeconomic environment may be uncertain, but this is not filtering through to make conditions more difficult for exhibitions organisers like Informa. Underlying revenues at its Global Exhibitions division still rose 6.9% during January to October, and the outlook remains strong for next year and thereafter, too, with the company advising that it has continued to enjoy “strong advanced bookings into 2019.”

A reflection of these robust market conditions means that City analysts are now forecasting further earnings growth of 4% for 2018, and 7% for 2019, meaning that Informa’s long-running progressive dividend policy is anticipated to remain in business as well.

Last year’s 20.45p per share payout is predicted to rise to 21.5p in the present period, and again to 23.1p in 2019. Consequently yields sit at a chubby 2.9% for 2018, and 3.1% for 2019.

Those stunning 6% yields

Through its broad geographic footprint spanning the US, Asia and Europe, Informa shareholders should take confidence that the Footsie firm has the flexibility to weather any troubles facing the economy, and keep growing dividends in the near-term and beyond.

I’m confident that the same can be said for HSBC Holdings (LSE: HSBA) although, as I’ve discussed before, I believe the bank’s bulky exposure to Asia constitutes the cornerstone to its bright investment outlook.

My belief was reinforced by forecast-busting third-quarter financials released in late October, too, in which HSBC announced that adjusted pre-tax profit shot 16% higher in the three months to September, to $6.2bn. And this was underpinned by a 13% profits jump for its Asian operations, which climbed to $4.5bn.

As earnings surge across the globe, City analysts expect HSBC’s earnings to sail 50% this year, and by 5% in 2019, figures that support anticipated dividends of 51 US cents and 52 cents for these respective years.

Yields sit at a monster 6.1% through to the close of 2019 as a result, a figure that should make all savvy dividend investors sit up and take notice, in my opinion.  In fact, with the banking behemoth also boasting a cut-price prospective P/E ratio of 11.7 times, I reckon it’s one of the best income shares on the Footsie right now.

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Get Carter

Its confident trading update follows a bumpy three months with the stock falling 15% over that time, although anybody following the fortunes of the FTSE 100 will know it is not alone in struggling lately.

Group CEO Stephen A Carter said that Informa has effectively combined with its £3.8bn acquisition, events organiser UBM, to create brands and platforms for future growth and scale. The merger created a business with a market cap of £8.91bn, making it the world’s largest business-to-business (B2B) events group and bringing economies of scale and cost synergy savings.

Forward march

More than 60% of its revenue is now booked and recurring, giving it “good forward visibility”. This is an international operation with strong positions in the US, Asia and the Middle East and Carter is confident of “delivering a further year of growth in revenue, profit, earnings, dividends and cashflow,” impressive amid the current uncertainty.

The combined Informa Group delivered underlying revenue growth of 3.9% over 10 months, with reported revenue growth up 31.8% including UBM’s contribution. This leaves it on track to meet its underlying revenue growth target of 3.5%+, even with the “uncertainties from US/China trade relations, Middle East political tensions and Brexit negotiations, amongst others”. The group’s relatively small revenue base in mainland Europe shrinks Brexit risks.

Black gold

Informa now trades at a forecast valuation of 15.1 times earnings with a solid yield of 3.1%, covered 2.9 times. Recent steady earnings per share (EPS) growth looks set to continue at a forecast 4% this year and 8% in 2019. This is one of the steadiest FTSE 100 companies I have looked at lately. Others think it is compelling too.

Oil major BP (LSE: BP) has also been bumpy, falling 8% over the last month as investors fret about the impact of the US-China trade war, emerging market weakness and rising interest rates, which could hit growth and demand for oil.

Falling barrels

Brent crude has now dropped below $70 a barrel – barely six weeks after breaking through the $80 barrier on Iranian sanctions fears. A surge in US shale production and higher output from Russia, Saudi Arabia, the UAE, Iraq and Libya, are behind the reversal.

Sentiment changes quickly though and while Saudi and Russia are now considering a production cut in 2019, one Trump misstep with Iran could send price hurtling upwards again.

Cash cow

Either way, BP will survive, just as it survived $27 oil in 2016, while still pumping out its dividends. It generated $6.6bn worth of cash in the third quarter alone, generating an underlying replacement cost profit of $3.8bn, up $1bn on the preceding quarter.

That was its best quarter in more than five years and promised divestments of $5bn-$6bn will be used to pay down net debt, which stood at $39.2bn on 30 September. BP’s forecast yield is a juicy 6% with cover of 1.4, yet it trades at a discounted price of just 11.4 times earnings. Recent weakness looks like a buying opportunity to me. Its stock could even hit 800p.

The post Got £2,000 to invest? I’d consider splitting it between the BP share price and this FTSE 100 growth stock 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?

harveyj 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.