The BP (LSE: BP.) share price has sure been erratic in the past few years. But for me, it’s the dividend that matters.
After all, it’s hard to think of many cash cows with better track records of filling their shareholders’ pockets each year.
The current weak share price means we could be looking at a forward dividend yield as high as 5.8% this year. And if BP can keep that going in the years ahead, it could compound up to a pretty penny.
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Forecasts
What does the future for BP dividends look like?
Checking a number of sources, I see some variation. And it’s compounded by the fact that BP pays dividends in US cents rather than pennies, so there’s a currency exchange factor there.
If the pound should strengthen in the coming decade, those cents will buy fewer pennies. It works the other way round too, and a weaker pound would mean bigger sterling dividends. But it’s an extra layer of risk.
The consensus right now is around 23-24p per share for this year. And that means a yield of 5.7% to 5.9%. By 2026, the analysts have the dividend edging up to 27p per share, pushing the yield to 6.7%.
Share price
What about share price forecasts? There’s an average target of 514p right now, though the range stretches from 430p to 654p. With the price at 408p as I write, that looks like a fairly strong buy consensus.
I always treat broker price targets with caution, though. They so often look like little more than fingers in the air and guesswork.
But I think they can be worth considering, if only to get a feel for the market sentiment behind a stock.
Company outlook
BP’s first half this year was highlighted by “strong operating cash flow and lower net debt“. Cash flow reached $8.1bn, while debt was reduced to $22.6bn.
On the shareholder reward front, strength continues. As well as lifting the dividend by 11%, BP spoke of a $3.5bn share buyback in the second half. That follows from $3.5bn in the first half.
Looking forward, the firm set one of its priorities as re-focusing its bioenergy business. And that surely signals the main uncertainy for the long-term future.
The BP dividend outlook seems strong for now. But a transition to more to renewable energy sources piles uncertainty onto that.
Transition
With BP, I think I’m seeing an unusual combination. I’ll often rate a stock as looking good for a long-term buy, but with short-term risk. And that’s fine, as I’m in it for the long term.
But here, I fear I see the opposite. I think the prospects for the next few years look really good. But the further forward I look, the less confident I am.
For that reason, even though I think I might be passing up a bargain buy, I’ll give BP shares a miss. Oh, and because I don’t want anti-oil protestors to cover me in soup.
