BP (LSE: BP.) shares are currently (2 November) trading close to a 20-year high. Stalled peace talks and the lack of guarantees of safe passage for tankers through the Strait of Hormuz mean oil and gas prices remain well above their long-term averages.
To the horror of ethical investors, this has helped boost the British energy giant’s earnings and cash flow. However, it also means the stock’s yield has fallen. But is this about to change?
Crunching the numbers
BP’s declared dividends of 25.27p a share over the past four quarters:
- Q4 2025: 6.2260p (8.320 cents)
- Q1 2026: 6.1844p (8.320 cents)
- Q2 2026: 6.4059p (8.660 cents)
- Q3 2026: 6.4526p (8.660 cents)
Based on these numbers, the stock’s yielding 4%. Although there can be no guarantees when it comes to dividends, a return like this comfortably beats the FTSE 100 average, which means BP’s likely to attract the attention of income investors.
However, I think it would be better to wait before considering investing. Why?
A cash machine
It’s no surprise that the group’s share price has risen strongly on the back of soaring energy prices.
With a barrel of Brent crude hitting a five-month high of $117 on 23 October, BP’s been generating huge amounts of cash. In addition, it’s been making good progress in cutting costs and becoming leaner.
During the second and third quarters of 2026, it reported operating cash flows of $10.86bn and $14.83bn respectively, compared to $2.86bn for the first three months of the year.
As a result, investors have been piling into its shares. Currently, the stock’s changing hands for 625p, which is far higher than anything seen recently. During the early months of the war in Ukraine, the group’s share price peaked at ‘only’ 560p.
However, at the start of the year, investors could have bought one for 433p. Just before the Iran war started in February, BP’s shares were trading at 478p.
What’s next?
Assuming America and Iran come to some sort of peace agreement soon, I’m confident that energy prices will fall back to pre-war levels. In fact, we could then be in for a period of historically low prices as Iran’s likely to demand that sanctions be lifted on its oil and gas exports.
In these circumstances, global supplies will increase and prices could fall sharply. For context, in April 2025, when oil was less than $65 a barrel, BP’s share price was just over 330p.
Based on an annual dividend of 25.27p, this is how the yield will change depending on BP’s share price:
- 330p: 7.7%
- 433p: 5.8%
- 478p: 5.3%
- 560p: 4.5%
- 625p: 4%
In short, unless the war continues for many more months, I can’t see BP’s share price rising much further. It’s in nobody’s interest — not least President Trump’s — for the conflict to continue.
At the moment, with the group’s share price close to a two-decade high, I’m struggling to find a reason to invest. However, when oil and gas prices return closer to historical averages, I think it would be worth taking another look.
Then, the stock’s likely to be yielding much more that it is today. Indeed, a potential return of over 7% would be extremely attractive. In the meantime, I believe there are lots of other exciting opportunities to consider.
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James Beard does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
