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BP: Greater Than 8% Yield From A Quality Oil Company

Mar. 05, 2020 1:29 PM ETBP p.l.c. (BP)BPAQF44 Comments

Summary

  • BP has an impressive portfolio of assets. The company has recently increased its dividend pushing its dividends to more than 8%. At the same time, it's utilized repurchases.
  • Going forward, BP expects significant cash flow expansion from both its upstream and downstream segments, even at a mere $55/barrel.
  • The company is investing in its renewable portfolio outside of the upstream and downstream segments. All of this together will position the company well for the future.
  • I do much more than just articles at The Energy Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

BP (NYSE: NYSE:BP) is a more than $100 billion oil major. The company has had a tough decade and a half to say the least. The company faced the 2008 crisis followed by the Deepwater Horizon oil spill. After this, the 2014 oil crash started, and most recently, we’ve had COVID-19 fears. However, through all this, BP has continued to execute on its goals, and as we’ll see, it has the potential for significant shareholder rewards.

BP - The Intercept

2019 Results

BP generated strong 2019 results, results that define the company’s continued abilities during a transition.

BP 2019 Results - BP Investor Presentation

BP generated $10 billion in underlying replacement cost profit and $28.2 billion in underlying operating cash flow. I’m personally not a fan of all the fancy terms, however, when looking at investing in these companies, it’s important to know what all of these terms mean. Underlying replacement cost profit is effectively how much profit did the company make when you account for replacing the utilized reserves.

The company has continued to invest heavily in its business, and has earned an 8.9% ROACE. At the same time, the company spent $8.5 billion on dividends and share buybacks. The vast majority of this is on dividends, which have recently hit more than 8% as the company’s share price has collapsed from the crash.

Simultaneously, BP has continued to execute on its goals. The company has had a number of major project start-ups and FIDs. It’s also continued to perform on its BPX Energy acquisition. BPX Energy is BP’s first major acquisition in a number of years. It was a $10.5 billion acquisition of BHP’s shale assets made at an opportune time as BHP has sought to focus on mining.

The last aspect of BP’s accomplishments was its focus

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This article was written by

The Value Portfolio profile picture
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The Value Portfolio specializes in building retirement portfolios and utilizes a fact-based research strategy to identify investments. This includes extensive readings of 10Ks, analyst commentary, market reports, and investor presentations. He invests real money in the stocks he recommends.

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Analyst’s Disclosure: I am/we are 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (44)

r
STOCK WILL RALLY ON A DIV CUT OF ABOUT 50%
j
you can't be serious! omg only reason UK pensions are in it is dividend
A
BP approaching the ALL TIME LOW of 20.20. Greater than 50% chance they will cut the dividend and CAPEX in half. Incredible carnage out there
m
The sad thing is I thought BP was a good hedge in a recession due to typically high price of oil. Then the Russian and Saudis decided to flood market in response to US Shale production. Lost about ~20k here.
Rookie IRA Investor profile picture
Since Rosneft is an integrated producer and retailer of fuels, is the recent drop in oil prices going to boost their retail margins or reduce them, and will the overall effect be good or bad for Rosneft? (Presumably bad overall, since they also have an international business.)

SInce Rosneft is majority state owned (I think this is right) how, if at all, will the dividends BP receives for its 20% ownership of Rosneft be affected by current developments?

At the present time BP stock ADRs are trading at a substantial discount to the lowest price ever touched during the Macondo oil disaster when the company was looking at possible bankruptcy and when it was unknown if the gusher in the Gulf of Mexico could ever be stopped, or what BP's liability might be, and the dividend was suspended, so the stock certainly looks interesting at these levels unless there is some factor that I don't know about which negates what I have written above, which is basically that if BP is not facing imminent bankruptcy, then the stock looks very cheap.
Luckey Duckey Hunter profile picture
Your guess is as good as ours and better than analysts. At this oil price level, the majors such as BP and Shell only make enough to cover dividend and interest payments. ECB already announced they will inject money to corporations so they’ll be borrowing at 0% or very close to it. It would be best to use the money to buy back more shares as that is the same as retiring 10% plus debt. Any company not buying back shares during low price is to be avoided as they don’t think it is worthy of their money so the shares are worthless than toilet paper since you can’t e-wipe your tail. Shell and BP are buying back shares like mad. Some shares were bought back last week before the price crash so you know they didn’t think price will be this low and know that their business is still sound. While they are still profitable at $30 Brent, they can’t grow and growth is overemphasized in business even for super giants who have been in business for over a century.

They’ll roll their debt with the new zero or almost zero interest loans and continue to retire shares at much higher rate as dividend is the same as interest for large stable companies.

What I don’t get is the price and performance discrepancy between LSE and NYSE. Shell and BP are down very little today Over LSE compared to NYSE. LSE was also up by a lot, 12% at one point until news that BP and Shell corporates did a massive buy on 9 March hit the newsfeeds. You would think it would continue to gain when additional confidence was bu liter in but a lot of traders decided to dump to take profit and total gain dropped to the 5% and 6%.
Rookie IRA Investor profile picture
I don't know. An awful lot of British pension funds are invested in BP, so perhaps they are not as willing to dump the stock as some entities in the US. Also, and I am just guessing, the structure and timing of European-style vs US options is very different and it could be that the price fluctuations are more about balancing option trading positions on the NYSE.

Anyway, I did take my morning dip in the BP dip water this morning with a small purchase of shares at a price down 6% from yesterday, and something like 15% below the lowest price touched during the Macondo disaster, which was $28.88 if my aging memory serves me right.
Rookie IRA Investor profile picture
Well, the forward dividend is now 9.4%, so the real question is whether the dividend will stand. If that is a yes, I would modestly suggest that it could be profitable to acquire the stock or sell puts.

You could sell the $20/$15 January 2022 LEAP puts spread for $2 and either make 40% on your money in January 2022 if the stock is over $20 at that time, or they stock would be put to you for net $18. Or if the stock recovers significantly by the end of 2020, just take your profit.
Little, Einstein profile picture
Oxy Petroleum slashes dividend, cuts capex
j
OXY SLASHES DIVIDEND .76>>>> .11
j
.79 to .11
w
Picked up a chunk this morning <$25
Tempting to buy more....
j
lol!
j
24.77
A
premkt at 25.83. 1st prediction complete. Next up dividend halt
j
$24.97 BTFD! losers
j
LOL!
A
Look for BP to open Monday morning at $25. Shortly followed by announcement to halt the dividend. End of week could see teens. War.
A
If/when the big traders take oil to 30 or even 20 surely the majors will have to suspend their dividends, yes? And stop all CAPEX? Surely then the mid and lower tier shale players still on life support will finally die? Oil in the 30's again will seriously hurt future production?
h
New years sale on again, 20-25% off on all products, Happy New Year. Wearable and durable against all weathers and chills! Buy 3 today and get one free in May. 😁
moblackty profile picture
Love BP but I would like to know when BP will end pay out to Fed. for BLOW OUT!!!!!
How many years left on Whipping Post. moblackty
B
My concern with the thesis short-term is that as the buck slides oil ordinarily is up on dollar basis. This not happening says the expedition is for a much greater demand destruction than currently in price. And dividends are safe only to the point they are not. These businesses carry huge debt load. I’m long but 2.5 years at 8% to break even is looking cloudy.
galicianova profile picture
I have the trio of rdsb bp and tot competing for my attention
And it is not clear which should be numero uno on my list at this time?? Any one cares to comment?
D
keep your eye on Chevron, it's probably better run than those three.
m
care to explain why you think Chevron is the best run?
K
Long BP.
Cuip99 profile picture
I am long in BP. Gonna buy some more of it in my IRA account,
G
Consider that if you owned BP for the last 30 days you lost 18%.in Capital.
kingRIG2.0 profile picture
This market is crazy, I don’t even think it was this weird in 2008
B
Thanks for pulling this information together.
Hungry for Knowledge profile picture
BP is the only major to buy, but not yet.
THe only reason to buy BP later is their focus OUT of oil.
Stranded assets. Ugh.
THe upside is their focus on solar, recharging stations, gas.
Not a pretty industry, regardless of the fact that "we'll be using oil for decades."
The world has changed and they used buggy whips for a long time after Ford did his thing.
Doesn't mean investors made any money for that "long time" though.

"The stone age didn't end because they ran out of stones," (unknown Saudi sheik or oil minister comment, made at some point)
Ramon_13 profile picture
Shell has made bigger investments into renewables and Total has moved towards it as well
c
Do you think BP will go below $20 due to Corona virus?
Yes
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