Global news has been gloomy recently. Russia is ravaging Ukraine in the third year of Europe’s biggest war since 1945. Israel is engaged in an armed assault on Gaza, while Iran just launched a huge aerial assault on Israel. So why is the BP (LSE: BP) share price not soaring?
Troubling times
Putting these troubled times into context, since World War 2 ended in 1945, the world has never seen a single year without some armed conflict raging. Indeed, it’s estimated that around one in eight of the world population — a billion people — is currently affected by various conflicts.
When geopolitics turn nasty, investors flock to safe assets, buying top-quality government bonds, such as US Treasuries and UK Gilts. They also hoard gold — the price of the precious metal surged by a fifth in the past year to all-time highs around $2,400 an ounce.
When conflict in the Middle East periodically worsens, the oil price tends to gush upwards due to heightened insecurity and instability. But a higher oil price is generally good for energy stocks, including the BP share price.
BP shares bounce back
Hamas launched its latest assault on Israel on 7 October 2023. This sent BP shares to a 52-week high of 562.3p on 18 October. They subsequently dived, crashing to a low of 441.05p on 22 January.
On Friday, 19 April, the BP share price closed at 514.9p, 8.4% below its October high. This values the oil & gas supermajor at £87.2bn — the fifth-largest company in the FTSE 100 index.
Here’s how this stock has performed over time:
| One week | -4.5% | One year | -3.8% |
| One month | +3.3% | Two years | +28.4% |
| Three months | +15.5% | Three years | +71.2% |
| Six months | -6.9% | Five years | -9.3% |
My table shows the zig-zags of the BP share price over time, driven by fluctuating energy prices. Despite producing solid gains over two and three years, it is down almost a tenth over five years — with the Footsie up 6.3% this period.
Dividends drive up returns
The above figures exclude dividends, which can be generous from booming energy firms. Today, BP stock offers a cash yield of 4.4% a year, versus 4% for the wider FTSE 100.
BP shares trade on a multiple of 7.4 times earnings, delivering an earnings yield of 13.5%. Therefore, the cash yield is covered 3.1 times by trailing earnings. To me, this suggests the payout is solid and could keep on rising.
That said, predicting the oil price is a mug’s game for all but the most sophisticated players. Supply and demand fluctuate, plus this market includes the powerful OPEC+ cartel. Thus, I can offer little insight into the future oscillations of the price of ‘black gold’.
What I will say is that my wife and I own BP stock in our family portfolio. We paid 484.1p a share for our stake in August 2023. To date, we are sitting on a paper gain of 6.4%, plus dividends on top.
Finally, if tensions keep mounting in Europe and the Middle East, then the oil price may gush higher again. Such spikes can be short-lived before prices recede again. Meanwhile, we will keep tight hold of our stock for years to come, ignoring short-term movements in the BP share price!
