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I want to diversify my income streams, but I'm also a bit lazy, so I don't want to put in too much effort to do so. This is where dividend stocks come in. I can rely on management to take care of the public company and generate healthy profits, which they can then distribute to me in the form of dividends. Other than researching the company and keeping up with its activities, there's not much for me to do, so this is the ultimate way to earn passive income.
blood pressure LSE:BP shares look like a great option for this. The company announced its Q2 2024 results on Tuesday (July 30). It increased its dividend from 7.27 cents per share to 8 cents. This is a 10% increase, but its share price has fallen 1.2% since the news broke. Does this represent a buying opportunity?
The dividend opportunity
If I use the Bank of England exchange rate of 1.2793 at the time of writing on August 2, that 8p per share dividend equates to 6.25p.
If we assume that is the new quarterly rate going forward, then the annualised dividend will be 25.01p.
At the time of writing, the share price is 449.40p. So, to earn an extra £200 a month (bearing in mind that dividends are not guaranteed), you would need to spend £43,119.93 to buy 9,595 of its shares.
Now, I understand that this is not an insignificant sum. However, City analysts are predicting further dividend increases until 2025. This is also very justified because, since September 2020, the company has increased its quarterly dividend at least once a year.
That means I'm likely to see this additional income grow over time, too. If I were to reinvest my dividends into BP stock, I could also accelerate the growth rate of my second income.
A strong quarter
Dividend aside, BP enjoyed a good quarter.
The company uses replacement cost profit as a measure of its net income. This reflects the cost of replacing its supplies (excluding inventory holding gains and losses and their associated tax effect). This was $2.8 billion when analysts were expecting only $2.6 billion.
In addition, its net debt fell from $24 billion in the first quarter to $22.6 billion.
Cash flow has also been trending upward, rising from $5 billion in the first quarter to $8.1 billion this quarter. This is also a big improvement from the $6.3 billion generated in the second quarter of last year.
Now what?
My only concern with BP is that the world will eventually move away from fossil fuels. This will be a big challenge for the company, especially since its performance tends to be similar to oil prices.
However, oil demand is expected to continue to rise until at least 2030. Goldman Sachs Researchers believe that it could even increase by 2034, which is very positive for BP. In addition, the company is planning for a world without fossil fuels, investing large sums in renewable energy.
Plus, it has a very cheap forward price-to-earnings (PE) ratio of 7.9. So, if I had cash to spare, I would buy some of its shares today.
