Many people have never considered investing in a British energy company. Yet, BP (NYSE:BP) stock is worth a look and gets a solid “B” grade for its compelling value-and-yield combination.
Just be aware that BP’s investors will have to ride the often choppy waves of the conventional oil and gas market.
After checking out some of BP’s fundamental facts, income-focused investors might actually be willing to give this international driller a chance.
So, whether you’re a beginner or an energy-industry veteran, let’s take a deep dive and see if BP deserves a place on your watch list in 2023.
BP: An Old and New Energy Pioneer
Ironically enough, if futures traders know one thing, it’s that the future is unknown. Oil and natural gas futures are particularly unpredictable, and stocks in the conventional energy sector are sometimes prone to bouts of volatility.
That’s why BP stock isn’t appropriate for every investor. Sure, BP is committed to new-energy initiatives, such as hydrogen technologies.
For example, the company recently launched a large-scale green-hydrogen project in Spain. In addition, BP is investing in offshore wind power in Germany.
BP is aggressively exploring for natural gas in the Caspian Sea. The truth of the matter is that no oil major, including BP, is immediately abandoning conventional energy.
So, if you plan to hold BP stock, be prepared to ride along for a while with the ups and downs of the oil and gas industry.
Steal Some Yield With BP Stock
There’s an advantage that you’ll find with many oil and gas stocks. Specifically, they offer attractive dividends. In particular, BP provides a forward annual dividend yield of 4.17%, which surpasses the sector average dividend yield of 3.752%.
That yield appears to be sustainable because BP’s dividend payout ratio (calculated as trailing 12-month dividends paid divided by the company’s earnings) is quite low at 17.71%.
As a rule of thumb, when a company’s dividend payout ratio exceeds 50%, investors might worry whether that dividend is too much for the company to continue paying.
Of course, yield shouldn’t be the only consideration for selective investors. Value also matters, and it looks like BP stock isn’t overpriced at all.
To support this, we can apply a classic valuation metric. BP’s trailing 12-month price-to-earnings (P/E) ratio of 4.34x is quite reasonable. To provide context, BP’s P/E ratio is below the sector median P/E ratio of 7.41x.
Finally, BP has a sound track record of beating Wall Street’s quarterly EPS forecasts. So, BP stock isn’t just a value trap – or a dividend trap, for that matter.
Consider the Risks and Rewards of BP Stock
BP is, by and large, an earnings beater and a deliverer of decent shareholder value. Plus, the company offers an enticing dividend. However, not every investor is prepared to take a position in the conventional energy market.
BP is definitely involved in that industry, which can be both challenging and rewarding. Hence, BP stock earns a “B” grade and may be appropriate for your portfolio, depending on your risk tolerance.
On the date of publication, Louis Navellier had a long position in BP. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
