I am by nature a contrarian value investor who prefers stocks with low valuations, solid growth prospects and whose shares are temporarily undervalued by the market. I also like high dividend payers whose payouts should increase in the future. Sometimes a stock presents itself that appeals both my value and dividend desires. One such stock is BP Plc (BP)
4 reasons BP should appeal to dividend investors.
- The stock yields 4.5% and just raised its dividend payment for the first time since the Gulf Oil Spill. Its dividend yield is higher than peers Chevron (CVX) at 3.2% and Exxon (XOM) at 2.2%.
- BP just settled with the majority of the plaintiffs in that spill, which should free it up to increase dividend payouts in the near future.
- Investors should remember that BP was paying $3.36 a share in annual dividends prior to spill. It is now paying $1.92 annually, even after February's increase. The company has far to go before it gets to its prior dividend level.
- It has a payout ratio of less than 30% and an A rated balance sheet, both of which support higher dividend levels in the future.
4 reasons the stock has significant value at $43 a share.
- The median price target on BP is $54. S&P has a $58 price target on the stock.
- Analysts project BP will start to grow revenues again in FY2013, and it is priced at just over 6 times forward earnings.
- The stock is cheap at 36% of annual revenues and is just 23% over its book value.
- The company is a cash flow machine (Over $20B a year) and sells for just 6 times operating cash flow. Estimates for FY2012 and FY2013 have ticked up over the last week as well.
Disclosure: I am long (BP).