The FTSE 100 is home to loads of amazing stocks paying generous levels of passive income. One that stands out to me is BP (LSE:BP.), with a potential return of 5.3%. This is over twice that of the index and more than can be earned from a high-interest savings account.
It means someone with £500 to spare could earn £26.50 in dividends. Does this make it a ‘must have’ for income investors? Let’s see.
Cash is king
Although dividends are a distribution of profit, they are paid in cash. And as any accountant will tell you, earnings can be very different to actual money. BP’s a good example of this.
The oil giant has just reported a replacement cost (RC) profit of $1.1bn for 2025. Its operating cash flow (OCF) was $24.5bn.
The massive difference between these two numbers is explained by movements in working capital affecting cash, and the exclusion from RC profit of the impact of changes in energy prices on the group’s inventories. Not surprisingly, the price of oil has the biggest impact on performance.
For those with a statistical mind, there’s been a 96% correlation (near perfect) relationship between the benchmark price of Brent crude oil and BP’s cash flows from 2018-2025.
| Year | Brent crude ($ per barrel) | Net cash from operating activities ($bn) |
|---|---|---|
| 2018 | 71.34 | 22.9 |
| 2019 | 64.30 | 25.8 |
| 2020 | 41.96 | 12.2 |
| 2021 | 70.86 | 23.6 |
| 2022 | 100.30 | 40.9 |
| 2023 | 82.49 | 32.0 |
| 2024 | 80.52 | 27.3 |
| 2025 | 69.14 | 24.5 |
In 2020, at the height of the pandemic, BP’s OCF was $12.2bn. To help preserve cash, it cut its dividend by 50%. This is a valuable reminder that nothing should be taken for granted when it comes to payouts, especially for a company that faces a huge number of operational challenges on a daily basis.
On the turn
However, since 2020, the group’s dividend’s been rising steadily.
For 2025, 32.96 cents (24.2p at current exchange rates) has been declared. Its final quarterly payout is 79% of what it was before the 2020 cut. With a current (13 Feburary) yield of 5.3%, it makes BP the eleventh most generous FTSE 100 dividend payer.
For context, the group paid $5.1bn in dividends in 2025. This suggests there’s plenty of headroom.
And as a reminder of how effective reinvesting dividends can be, someone buying £500 of shares today could grow this to £1,818 (a 263% return) over 25 years, assuming the group can maintain its present yield.
A new strategy
In a change of approach, the group’s decided to suspend its share buybacks. Instead, it’s going to use its surplus cash to “accelerate strengthening” its balance sheet and to take advantage of its “distinctive deep hopper of oil and gas opportunities”.
Indeed, the group’s been working hard to reduce its net debt. It fell by 2% over the course of 2025, but it’s expected to fall more significantly over the coming months as the group continues to dispose of some of its non-core assets.
BP’s been struggling for identity lately but the direction of travel now appears clear. It’s going to focus more on its hydrocarbons business. When Meg O’Neill, the group’s new boss, takes over in April, I suspect she will be pleased that much of the heavy lifting has begun. All of the group’s recent actions – improving its cash flow as well as reducing its costs and borrowings – have, in my opinion, made BP’s dividend more secure than previously. That’s why I reckon it’s an excellent passive income stock to consider.
This story originally appeared on Motley Fool
