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He PA (LSE: BP.) The share price has surely been erratic in recent years. But for me what matters is the dividend.
After all, it's hard to think of many revenue streams with a better track record of lining their shareholders' pockets each year.
The current weakness in the share price means we could be looking at a future dividend yield of up to 5.8% this year. And if BP can maintain that trend in the coming years, it could turn out to represent a pretty penny.
Forecasts
What does the future of BP dividends look like?
In reviewing various sources, I see some variations. And it's compounded by the fact that BP pays dividends in pennies on the dollar rather than pennies, so there's a currency factor there.
If the pound strengthened over the next decade, those pennies would buy fewer pennies. It also works the other way around: a weaker pound would mean higher sterling dividends. But it's an extra layer of risk.
The consensus at the moment is around 23-24p per share for this year. And that means a yield of 5.7% to 5.9%. By 2026, analysts expect the dividend to reach 27 pence per share, taking the yield to 6.7%.
Share price
What about stock price forecasts? There is currently an average target of 514p, although the range extends from 430p to 654p. With the price at 408p as I write, it looks like a pretty strong Buy consensus.
However, I always treat brokers' price targets with caution. Many times they seem like little more than fingers in the air and guesses.
But I think they're worth considering, if only to get an idea of 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 $8.1 billion, while debt was reduced to $22.6 billion.
On the shareholder reward front, strength continues. In addition to increasing the dividend by 11%, BP talked about a $3.5 billion share buyback in the second half. This follows from the $3.5 billion in the first half of the year.
Looking to the future, the company set one of its priorities to reorient its bioenergy business. And that surely points to the main uncertainty for the long-term future.
BP's dividend prospects look strong for now. But a transition to more renewable energy sources adds uncertainty.
Transition
With BP, I think I'm seeing an unusual combination. I often rate a stock as good for a long-term buy, but with short-term risk. And that's okay, since I'm in this for the long haul.
But here I'm afraid I see the opposite. I think the outlook for the next few years looks really good. But the further ahead I look, the less confidence I have.
For that reason, while I think I might be passing up a cheap buy, I'll leave out BP stock. Oh, and because I don't want anti-oil protesters to cover me in soup.
