Friday, September 12, 2008

BP (BP) Stock Dividend Analysis

BP p.l.c. provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. It operates in two segments, Exploration and Production, and Refining and Marketing.

BP is an international dividend achiever as well as a component of the British FTSE 100 index. It has been increasing its stock dividends for the past 9 consecutive years. From the end of 1997 up until August 2008 this dividend growth stock has delivered an annual average total return of 6.90 % to its shareholders.

At the same time company has managed to deliver an 22.80% average annual increase in its EPS since 1998, helped by a massive rise in commodities.

The ROE has ranged between 10% and 29% over the past 10 years.

Annual dividend payments have increased over the past 10 years by an average of 7.00% annually, which is equal to the growth in EPS. A 7% growth in dividends translates into the dividend payment doubling almost every ten years. The current annual dividend payment is double what it was in 1999.

If we invested $100,000 in BP on December 31, 1997 we would have bought 2510 shares (Adjusted for a 2:1 stock split in October 1999). In February 1998 your quarterly dividend income would have been $883.52. If you kept reinvesting the dividends though instead of spending them, this dividend stock would have produced a quarterly dividend income of $2974.44 by August 2008. For a period of 10 years, your quarterly dividend payment would have increased by 139%. If you reinvested it though, your quarterly dividend income would have increased by 237%.

The dividend payout ratio has decreased from over 100% in 1998 to hover around 40% in recent years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that BP is attractively valued with its low price/earnings multiple of 8 and low dividend payout ratio as well as the above average dividend yield of 5.8%. The dividend yield and P/E ratio at the moment are much lower than what they have been over the past decade.

Disclosure: I do not own shares of BP

Relevant Articles:

2 comments:

  1. Ah,once again, a reason to judge more than the dividend yield of a stock. Here we have a position down about 50% from its highs of several months ago, about 8 years or so of dividends, and still hanging on waiting for them to cut the dividend. Too late.

    ReplyDelete
  2. David,

    Note the date when this analysis was written. I sold the stock as soon as the dividend was cut and purchased RDS.B. When you run a public blog, where one discloses their positions, I would certainly run into a dissapointment from time to time. Only in the "perfect world" of paper trading one would generate great buy/sell decisions without emotion and at the right time..

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts