Friday, September 5, 2008

BP (BP) Stock Dividend Analysis

BP p.l.c. provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. It operates in two segments, Exploration and Production, and Refining and Marketing.

BP is an international dividend achiever as well as a component of the British FTSE 100 index. It has been increasing its dividends for the past 9 consecutive years. From the end of 1997 up until August 2008 this dividend stock has delivered an annual average total return of 6.90 % to its shareholders.

At the same time company has managed to deliver an 22.80% average annual increase in its EPS since 1998, helped by a massive rise in commodities.

The ROE has ranged between 10% and 29% over the past 10 years.

Annual dividend payments have increased over the past 10 years by an average of 7.00% annually, which is equal to the growth in EPS. A 7% growth in dividends translates into the dividend payment doubling almost every ten years. The current annual dividend payment is double what it was in 1999.

If we invested $100,000 in BP on December 31, 1997 we would have bought 2510 shares (Adjusted for a 2:1 stock split in October 1999). In February 1998 your quarterly dividend income would have been $883.52. If you kept reinvesting the dividends though instead of spending them, this dividend stock would have produced a quarterly dividend income of $2974.44 by August 2008. For a period of 10 years, your quarterly dividend income would have increased by 139%. If you reinvested it though, your quarterly dividend income would have increased by 237%.

The dividend payout has decreased from over 100% in 1998 to hover around 40% in recent years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that BP is attractively valued with its low price/earnings multiple of 8, low dividend payout ratio as well as the above average dividend yield of 5.80%. The yield and P/E ratio at the moment are much lower than what they have been over the past decade.

Disclosure: I own shares of BP
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  1. this looks very interesting given the current environment and their history of dividend growth. The stock chart looks horrible technically though. I would imagine their pay out ratio will creep up again if we see oil prices stabilize.

  2. Great write-up! I just recently bought some more BP at a 6.22% yield.

    Best Wishes,

  3. I recently bought some BP as well. The chart does look horrible, but given the fact that EPS in 2008 is double what it was in 1999, and yet the stock trades at almost the same price level seems pretty attractive to me. Longer-term I wouldn't care what the stock does as long as they pay out more than $2.50/share every year :-)

  4. Anon: The Russian situation is certaintly an issue facing BP. Though BP reported strong Q2 results I suspect TNK-BP will suffer next year from the current problems with Russian shareholders. The recent share price decline can be directly attributed to this situation. To counteract this situation, BP will likely intensify its reserve acquisitions
    to diversify away from its long-term Russia-centered strategy.

    Best Wishes,

  5. A small headwind facing the dividend is currency. If a particular investor is a U.S. resident, a strengthening dollar would reduce the dividend on a currency adjusted basis. On the other hand, it seems many energy stocks are getting pummeled due to the liquidation of one specific hedge fund and rumors about another. Focusing on the long term is key.

  6. Well, BP is currently working on 28 new projects in this year through 2009, with a major one in the gulf of mexico. The company has shown a great history in reserve replacement.
    The TNK-BP venture does account for 25% of BP's hydrcarbon production. I agree with David that one should look at BP as a longer term play. There is currency risk which could always be hedged.

  7. Good day!
    It is very informative and has a very good quality in it.
    I like it...

    Thank you very much for your time.


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