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BP (LSE: BP) shares are a FTSE 100 fixture, and plenty of retirees already rely on their dividends to top up their pensions. But this doesn’t make them a rock solid investment. They’ve been wildly volatile over the last 15 years and, for all we know, that could continue.
The BP share price has climbed steadily since April, but it’s still only 12% higher than a year ago, and down 18% over two years. I bought the oil and gas giant last year, hoping to benefit from a recovery. It hasn’t really got going yet though.
FTSE 100 underperformer
There are reasons to remain wary of BP. This is a company that spent years edging into renewables, only to retreat when the going got too bumpy. I never felt it believed in the green transition anyway.
The shares rocketed after Russia’s invasion of Ukraine in 2022, then slipped as Europe secured alternative supplies. Although BP’s more than just an oil explorer, its fortunes do tend to ebb and flow with energy prices.
I’d like to say that the board has paid out a solid stream of high and rising dividends throughout, but that’s not the case. BP froze shareholder payouts at 40 US cents a share in 2016 and 2017. It then cut them twice in the pandemic, and re-started them at a lower rate of 21.63 cents in 2021. By 2024, that climbed to 31.27 cents, but that’s lower than a decade ago.
So how many BP shares would an investor need to generate £100 a month, or £1,200 a year, in passive income? As I’m writing, BP’s share price is 434.05p. I expect the full-year 2025 dividend per share to come in around 34 cents (roughly 24p).
To hit that £100 a month second income target, an investor would need exactly 5,000 shares (weirdly). At today’s price, that comes to about £21,700.
That’s a hefty sum to place in a single stock, particularly for someone starting out. Building that position gradually, or better still spreading it across several income stocks, is a safer way to reach the same goal over time.
Valuation puzzle
On paper, BP looks overpriced. Its trailing price-to-earnings ratio is a daunting 242, skewed by a 97% earnings slump in 2024. The forward P/E of 14.5 is more sensible. For investors trying to make sense of these numbers, brushing up on other methods of valuing shares could be handy.
Underlying replacement cost profit (BP’s preferred measure) fell almost 15% to $2.35bn in the second quarter of 2025, but that still beat of forecasts. The dividend was lifted 4% to 8.32 cents a share, and share buybacks continued at $750m. Net debt remains close to $30bn, but with annual revenues nearing $190bn, management has room to chip away.
BP currently has a trailing yield of 5.57%, comfortably above the FTSE 100 average of 3.25% today. If dividends continue to grow, and investors pump them back into the stock, the number of BP shares required to secure £100 a month could shrink over time. Of course, oil and gas remain cyclical and profits can be bumpy, so payouts aren’t guaranteed.
I think BP’s still one to consider buying, but only for those who understand it comes with risks too.
This story originally appeared on Motley Fool
