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BP (LSE: BP) shares have been a shining light in my portfolio through recent market turbulence. I suspect I’m not alone in that.
While the world worries about global conflicts and rising oil prices, BP shareholders have some consolation. The FTSE 100 as a whole is up just 7.8% year-to-date, but BP has gained 40%, with dividends on top. Many will be surprised it isn’t more.
Riding the oil price wave
The share price dipped over the summer as hopes grew of a resolution to the Iran conflict that would reopen the Strait of Hormuz and restore energy flows. Investors know that if the oil price spike reverses, BP shares could retreat just as quickly.
BP isn’t a pure play on crude prices. Issues such as production volumes, refining margins, trading performance and costs also affect the share price, but when oil flies, the stock typically follows.
It has also endured well-documented problems over the past 15 years, starting with the Deepwater Horizon disaster in 2010 and continuing through boardroom struggles and its controversial green energy pivot.
Yet the shares have performed well. They’re up 75% over five years, while total returns with dividends reinvested have reached 110%. Over a decade, the total return is 140%. Generous share buybacks have helped.
Profits and payouts
The trailing dividend yield has retreated to 4%, largely because the share price has risen so sharply. BP increased shareholder payouts by an average of 9.65% a year over the past five years, although that figure needs context. It reflects the recovery in profits after the Ukraine war sent energy prices soaring, as well as the board catching up after slashing the dividend during the pandemic. The 2025 dividend increase was a more modest 5.4%.
Second-quarter results (4 August) were stronger than expected. Adjusted replacement-cost profit jumped 143% to $5.7bn, while net cash flow reached $7.8bn. Net debt fell 15% to $22.3bn, although that remains a hefty sum. BP increased its dividend by 4%, but the pause in share buybacks continued.
New chief executive Meg O’Neill has made a promising start by streamlining the business and selling assets. The challenge is that disposals become harder to sustain over time.
Should I bank my gains?
Despite the rally, BP trades on a forward price-to-earnings ratio of just 7.2. The yield’s forecast to reach 4.17% this year and 4.35% in 2027.
That looks attractive, but the big question is where oil goes next. Crude has reached $114 a barrel, and with no resolution to the Middle East conflict in sight, it could climb further. But any easing of tensions could bring prices tumbling back, swiftly followed by BP shares.
Investors buying BP today are putting themselves at the mercy of energy markets and geopolitics. Also politics, with a potential windfall tax hike in the Autumn Budget. I’d be wary of buying after such a strong run, but I’m not banking my own profits.
BP has been a brilliant portfolio diversifier. If its shares retreat, I should have the consolation of watching most of my portfolio in the opposite direction. For now, I’ll keep holding and reinvesting those dividends. And it’s possible to get an even juicier 7% yield elsewhere on the FTSE 100…
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Harvey Jones owns shares in BP.
This story originally appeared on Motley Fool
