BP (LSE: BP) shares have taken a beating, shedding more than 30% of their value over the past year.
The share price collapse hasn’t come out of nowhere. BP’s backtracked on its awkward shift into renewables, piling back into fossil fuels with visible relief.
The U-turn may have soothed some market nerves, but it’s far from clear if this will pay off in the long run. It could leave the company stranded if the net zero charge continues to gather momentum.
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The board’s also come under constant pressure from activist investor Elliott, which is pushing BP to trim the fat and sharpen its focus.
Meanwhile, new chief executive Murray Auchincloss has inherited a mess and is still trying to carve out a convincing direction.
Can this FTSE 100 giant bite back?
The uncertainty has left BP exposed to every shift in sentiment. It’s a front-line stock in the global economy and highly sensitive to commodity prices and geopolitics.
When Donald Trump’s tariff threats pushed oil prices closer to $60 a barrel, BP took a direct hit. At those levels, it can still break even but the profits shrink, and that’s partly prompted a cutback in its super-generous share buybacks.
Adding to investor fears, on 11 April, BP warned of a dip in first-quarter gas and low-carbon energy production. It also said net debt would rise by $4bn, although this was mainly down to seasonal quirks and timing issues and should reverse.
There was better news on 14 April as BP announced a promising new oil find in the Gulf of Mexico. The group’s keen to boost upstream output and is planning 40 exploration wells over three years.
This move to double down on oil and gas may not please everyone, but it could support the dividend for longer.
The stock looks cheap, but risky
Thanks to the BP share price slump, the yield now stands at an attractive 6.5%. That’s a brilliant level of income, if it proves sustainable. I think it probably will, but further reductions in buybacks can’t be ruled out.
The shares go ex-dividend on 15 May. Investors buying before that date must accept that the stock’s likely to drop that day, as the company’s value adjusts to reflect the payment.
That doesn’t make it a free lunch, but for those looking to build long-term income, the yield’s tempting.
Still, this isn’t a low-risk holding. Trade friction, uncertain oil demand and BP’s internal struggles are spooking investors, including me. It’s spent much of this century underwhelming shareholders and can’t be viewed as the reliable income and growth machine that it used to be.
Value opportunity, or trap?
The 26 analysts covering the stock have a median 12-month price target of just over 456p. That’s up more than 20% from today, with dividends on top. That’s impressive if it comes through, but forecasts should always be treated with caution, especially today when anything can happen, and usually does.
BP isn’t the rock-solid proposition it was, but for income seekers with a long-term view, it’s still worth considering. The next dividend lands on 27 June. I’m looking forward to receiving mine, and will reinvest it straight back into BP.
