BP (LSE: BP) shares have been on a turbulent journey in the past couple of years. 2022 saw the stock soar an impressive 30%+ as the war in Ukraine saw oil supplies dwindle and demand surge. However, year to date, shares in the oil and gas stalwart have slid 7%.
So, does this dip present an opportunity to buy? And can the BP share price regain the momentum we’ve seen recently? Let’s discuss.
Cash rich
Well, there’s certainly a lot to like about BP shares.
And one example is its dividend yield. The stock offers a yield of 4.6%, which sits comfortably above the average of its FTSE 100 peers. Moreover, the business has made strides to return value to shareholders in recent times, such as the completion of a $2.2bn share buyback scheme in Q1.
Looking ahead, BP’s dividend forecasts also look appealing. The yield is predicted to rise to 4.8% in 2024. And with this covered between three or four times by anticipated earnings, these forecasts look in good shape to be met.
Adding to this, the company’s $2.3bn excess cash in Q1 highlights its ability to generate funds. More widely, after its stellar 2022, BP finished the year with a surplus cash flow of $19.3bn, a $6bn jump from the year prior.
The shares also look cheap, with a price-to-earnings ratio of just 4.2. For comparison, the FTSE 100 average is over three times that.
BP risks
So, BP shares clearly have potential, but I do have my concerns. And there is one major risk that surrounds the company.
The transition to a greener world.
Many investors who factor environmental, social, and governance (ESG) concerns into their investments are already steering clear of the stock. This could heighten in times ahead.
It’s likely that governments across the globe will also begin to place greater pressure on the business. In fact, they already have done so.
And with the company slashing its oil and gas emissions reduction goal from 40% to 25% for the end of the decade earlier this year, it seems that BP may become a target of scrutiny.
Admittedly, I think it will be a long time before the world weans off its reliance on traditional oil and gas. But as a greater number of investors inevitably become more conscious of ESG factors, this could harm the BP share price.
Another potential risk is its debt. Currently, this sits at $21.2bn. And while this has been significantly reduced by nearly $9bn, that’s still a sizeable pile.
Bargain or trap?
I do like BP. But for now, I’ll be avoiding the shares.
Its dividend is certainly attractive. However, I think there’s too much uncertainty surrounding the stock for me to buy it at this moment.
The transition to a greener world will no doubt intensify in the years ahead. And if BP finds itself on the wrong side of this, it could suffer.
It’s on my radar, and if the stock continues to fall, I’ll reassess. But I won’t be biting the buy button right now.
