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BP (LSE: BP) shares used to be a portfolio must-have. In the second half of the 20th century, it was one of Britain’s biggest and brightest FTSE 100 blue-chips. A constant stream of dividends underpinned countless retirement incomes.
The 21st century has been less kind. BP ended 1999 trading at 622p. Today, the share price sits below 360p. That’s a 42% drop over 25 years.
It’s been hit from everything from the 2010 Deepwater Horizon disaster and subsequent compensation blitz, to growing pressure on fossil fuel firms to decarbonise.
Management zig-zagged on strategy. The pivot to net zero led to charges of greenwashing, the return to fossil fuels had its critics too. BP can’t seem to win either way.
Former FTSE 100 hero
All would probably be have been forgiven, if the oil price was sitting at $100 a barrel today, and the cash was flowing. Instead, Brent crude is bouncing around the $60 mark as traders fret over weak global demand and fears of oversupply.
BP can still break even at around $40 a barrel, but there’s a big difference between breaking even and generating the billions it needs to reward shareholders and cut debt.
Last month, the board slashed quarterly share buybacks from $1.75bn to $750m. The savings will be diverted to tackle net debt, which climbed 12% to $26.97bn in 2024.
Dividends are still flowing
So far, the dividend remains intact. BP held the payout at 8 cents per share in its Q1 results, published on 29 April. That’s roughly in line with where it’s been since the 2020 rebasing. The board plans to return 30% to 40% of operating cash flow to shareholders over time.
The forward yield looks strong at 6.85% this year, with analysts forecasting a rise to 7.12% in 2026. But that’s partly down to the sliding share price.
I added the stock to my self-invested personal pension (SIPP) last September, thinking the bad news was priced in. Instead, I’m nursing a 12% loss. It could be worse. Over 12 months, the stock has dropped 25%.
BP’s Q1 numbers were steady enough. Its $1.4bn underlying replacement cost profit was up from $1.2bn the previous quarter.
Three new projects are under way, six fresh discoveries have been made, and BP is boasting about its upstream plant efficiency.
Valuation looks tempting
For anyone who believes in the long-term value of oil, and BP’s ability to steer through the transition, the stock may be tempting. This is a famously cyclical sector, after all.
The 27 analysts serving up one-year share price forecasts have produced a median target of just over 433p, up 20% from today.
But forecasts are just a snapshot in time, and many of these have probably been lying around for a while now.
Of the 31 analysts offering stock ratings, an unusually high proportion (15) say Hold. I think that reflects the uncertainty.
I’m holding myself, but I’m not expecting much joy in the short term. The shares didn’t even get a bump from Donald Trump rowing back on tariffs, unlike the vast majority of the FTSE 100.
So is BP (and therefore its shares) doomed? Without fundamental change, I think it might be in trouble. I’m just hoping the pressing nature of its existential challenge will finally shake the company out of its torpor.
