BP Plc: 5.1% Yield And Capital Appreciation Potential

| About: BP p.l.c. (BP)

BP plc (NYSE:BP) reported earnings this morning, and the report showed a good amount of progress across a variety of fronts. The company has been under a huge cloud since the disastrous Gulf of Mexico oil spill in 2010. However, the company looks as if it is ready to emerge from the clouds. Its cheap shares look ready to break out on this positive earnings report. In addition, the company pays a 5%-plus dividend, so it makes an ideal addition for income investors and is a core part of my dividend portfolio.

Here are several key highlights from BP's earnings report:

  • The company reported earnings of $1.32 a share, easily beating estimates calling for $1.01 a share.
  • Improved fuel trading helped boost downstream profit to $1.3 billion from $490 million in the year-ago quarter. Global refining margins were $17.80/bbl vs. $14.75/bbl for the same period last year.
  • Production/revenue was helped nicely from its Skarv field in the North Sea and from its PSVM facility in Angola, both of which started producing at the end of last year.
  • The company also stated that will start four upstream projects by the end of the year.
  • Thanks to the sale of its Russian joint venture, the company's replacement cost profits rose to $16.5 billion from $4.7 billion for the same period last year.

Here are four reasons why BP is a buy at $43 a share:

  1. BP yields 5.1% and has increased its dividend payout some 30% over the last two years. The company has repaired its balance sheet, and I would look for it to accelerate its dividend payouts once it has fully put the Gulf oil spill behind it.
  2. This marks the third quarter in a row that the company has beat earnings estimates, and the stock sells for 8.5x 2014's projected earnings.
  3. The shares are cheap at 15% above book value and less than seven times operating cash flow.
  4. The 10 analysts who cover the stock have a median price target of $51.50 a share. I think price targets should get adjusted upward over the next few weeks on the back of this earnings report.

Disclosure: I am long BP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.