Since stock markets closed on Friday, 27 October, the US S&P 500 has soared. From then until 22 November, the main US market index has leapt by 10.7%. Meanwhile, the UK’s FTSE 100 has gained just 2.6%. One factor holding the Footsie back has been the battered BP (LSE: BP) share price.
Down goes the BP share price
While US stocks are set for their best month since July 2022, the FTSE 100 is up only 1.9% so far in November. The worst performer in the blue-chip index has been oil and gas supermajor BP. In fact, its plunging share price leaves it in 100th and last place in the FTSE over the last 30 days.
On 18 October, BP shares closed at 558p, hitting their highest level since mid-February. Since then, they have dived, closing at 473.5p on 23 November. This leaves the share price down 15.1% in just over five weeks.
I must declare an interest here. My wife and I bought BP stock for our family portfolio at a price of 484.1p a share in mid-August. At first, the stock shot up, but has since fallen back so fast that we now sit on a capital loss on paper of 2.2%.
What’s changed for BP?
As a major oil exploration and production company, BP’s fortunes are closely tied to the price of ‘black gold’. Thus, when the oil price lurches southwards, so too do the shares of the major players.
The price of a barrel of Brent crude oil was riding high five weeks ago, hitting $92.38 on 19 October. As I write (late on 23 November), $81.34 now buys a barrel of Brent. Therefore, the price has dived by more than $11 — down 12% — in exactly seven weeks.
There you have it. Nothing sinister or untoward has happened to BP or its extensive global operations. However, if the oil price stays weak (or falls further) then the group’s revenues, earnings, and cash flow could take a hit.
BP seems a beautiful bargain
Over one year, the BP share price is down 2%, versus a rise of 0.2% for the FTSE 100. Meanwhile, over five years, the shares are down 9.1%, against a 7.2% rise for the Footsie.
That said, the above figures exclude cash dividends — and BP pays out billions of pounds a year to its shareholders (including me). Today, the FTSE 100 offers a cash yield of 4% a year, but is beaten by BP’s dividend yield of 4.9% a year.
What’s more, BP shares are trading on a miserly multiple of 3.9 times earnings, delivering a bumper earnings yield of 25.9%. Hence, its dividend yield is covered a powerful 5.9 times by trailing earnings. And with BP worth £80.5bn, this torrent of cash is backed by from the Footsie’s fifth-largest company.
Then again, as one of the world’s biggest polluters, BP and its shares are shunned by ESG (environmental, social, and corporate governance) investors. Also, its next set of quarterly results are guaranteed to be worse than the last, because of that falling oil price.
Summing up, if I had the spare cash to double my holding in this cheap mega-cap company, I wouldn’t hesitate to do so at the current BP share price!
