BP (LSE: BP) was one of the FTSE 100‘s worst performers in the stock market crash. The company chose the moment to announce its new Net Zero strategy, which didn’t help. But with economies slowing sharply, the price of a barrel of oil plunged to around $20. And the BP share price tumbled too.
Oil is now above $90, its highest in nearly eight years. And BP shares are bouncing back. After a 43% gain over the past 12 months, they are now down a relatively modest 12% since January 2020, just prior to the crash. Considering it had lost nearly 60% of its value by October 2020, that’s an impressive recovery.
Are we on for sustainable strength now, and should I buy? I’ll take a look at the pros and the cons.
Buying a strong share on the dips can be a good strategy, and those who bought BP during the crisis have done well. But I would only buy if I planned to hold for a decade, or more. And there’s one thing that troubles me on that front now. The dividend. The company rebased it in 2020, and has remained low for 2021.
A reimagining
When BP announced its Net Zero strategy in February 2020, it said the firm’s new purpose was “reimagining energy for people and our planet“. When companies start reimagining things, I start reimagining my potential profits, and not in a good way.
But BP has still had cash to return to shareholders, and has been repurchasing its own shares. That will surely have assisted the BP share price recovery. And it should help the future dividend per share figure.
Results for 2021 brought some optimism too. The company said it “expects to be able to deliver share buybacks of around $4.0 billion per annum and have capacity for an annual increase in the dividend per ordinary share of around 4% through 2025“.
Dividends still coming
And even the reduced 2021 dividend still provided a 4.1% yield on the current share price. Despite the pressure on fossil fuels, BP is still putting the cash into shareholders’ pockets. With the share price still only partly recovered, and with the possibility of a decade of progressive dividends ahead, I really do think BP could turn out to be among the best FTSE 100 shares for me to buy right now.
But then there’s the fossil fuel crisis. And we’re not just talking about solar energy and wind farms. The UK-based JET laboratory recently managed to get its nuclear fusion test generator running for a full five seconds, producing 59 megajoules of energy.
Sure, that’s only enough to boil about 60 kettles of water. But I wonder what happened to the stagecoach builders who, in 1903, said “pah, those Wright brothers only flew 850 feet.” Nuclear fusions works, and it produces zero carbon dioxide. Of course, it might be BP that builds the commercial fusion generators.
BP share price volatility?
There could be decades of hydrocarbon profits to be made yet. Still, the BP share price does closely follow oil. If the past decade is anything to go by, the next decade could be very volatile. And I really can’t guess how BP will look at the end of another 10 years.
That uncertainty will keep me away. I suspect though, that I could come to look back on another decade of dividends with a little regret.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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