It’s been a pretty good year for BP plc (ADR) (NYSE:BP) so far, with shares of BP stock up about 9% in 2018. And while the stock has done well, investors may still want to consider owning this energy conglomerate.
In fact, there are three reasons to consider owning BP plc (ADR) stock. Let’s look at them now.
BP Stock Dividend
Despite all the headaches in the energy sector over the last few years, BP stock has continued to pay out a dividend. Even though it carried a high yield for much of that time, BP proved that its management style was correct. Or at least, so far that seems to be the case.
Currently, BP pays out a 5.2% dividend yield. Add that to the near-10% return in the stock price this year and shares don’t have to do anything but hold steady to keep investors happy. Of course, any further gains certainly won’t draw complaints from the bulls.
But in any regard, collecting a 5% yield is great and doing so from a company with a robust business is even better. (Here are a few more 5%+ yields we like).
BP Stock Growth and Valuation
That 5.2% yield doesn’t mean much if BP is trapped in a secular decline. Thankfully, that’s not the case. Analysts expect revenue to grow almost 15% in 2018, before experiencing a slight decline in 2019. On the earnings front, they’re looking for a 61% surge in earnings this year and almost 3% growth in 2019.
With an energy market as volatile as the one we have now, 2019 estimates are a little too far away to start baking into our outlook. But if there’s a silver lining there, it’s that earnings are forecast to grow, despite a slight contraction in sales. That bodes well for margins, as do expectations for 2018.
For this, we’re paying a rather reasonable 15.2 times this year’s earnings.
Rising Oil Prices
Of course, the rise in energy prices is helping fuel this growth. Like Chevron Corporation (NYSE:CVX), BP’s upstream results helped offset some of the weakness seen in its downstream operations. In fact, its upstream is doing more than helping — it’s crushing it right now.
BP’s first-quarter upstream EBIT of $3.15 billion grew more than 230% year-over-year and more than 40% from the fourth quarter. From the company’s earnings release: “Upstream reported the strongest quarter since third quarter 2014 on both a replacement cost and underlying basis.”
Production is up as is plant reliability, which had its best quarterly performance on record. BP is pushing forward with new projects too. These are all very good developments.
The rise in oil prices should boost BP’s second-quarter results as well. Admittedly though, this isn’t BP specific. The rise in WTI crude prices has also given a boost to the Energy Select SPDR (ETF) (NYSEARCA:XLE).
Trading BP Stock
Perhaps the least-promising aspect of BP stock at this point is on the charts.
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Shares are slightly overbought and momentum could soon wane, as indicated by the RSI and MACD measurements (orange circles). Further, shares are pretty extended, rallying about 15% over the past six weeks.
If BP stock falls, it should be looked as an opportunity, not a bearish development. As long as support comes into play, investors should buy into the weakness. Specifically, I’d like to see BP stock fall about 5% to 7%. That would put it between $42.50 and $43.50. Support from the 50-day and 100-day moving averages would be nearby and the $42 to $43 level should act as support as well.
Plus, don’t forget that juicy dividend.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
