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BP (LSE: BP) shares are a FTSE 100 fixture, and loads of retirees already depend on their dividends to prime up their pensions. However this doesn’t make them a rock strong funding. They’ve been wildly unstable over the past 15 years and, for all we all know, that might proceed.
The BP share value has climbed steadily since April, but it surely’s nonetheless solely 12% greater than a 12 months in the past, and down 18% over two years. I purchased the oil and fuel large final 12 months, hoping to learn from a restoration. It hasn’t actually acquired going but although.
FTSE 100 underperformer
There are causes to stay cautious of BP. It is a firm that spent years edging into renewables, solely to retreat when the going acquired too bumpy. I by no means felt it believed within the inexperienced transition anyway.
The shares rocketed after Russia’s invasion of Ukraine in 2022, then slipped as Europe secured various provides. Though BP’s extra than simply an oil explorer, its fortunes do are likely to ebb and stream with vitality costs.
I’d prefer to say that the board has paid out a strong stream of excessive and rising dividends all through, however that’s not the case. BP froze shareholder payouts at 40 US cents a share in 2016 and 2017. It then reduce them twice within the pandemic, and re-started them at a decrease charge of 21.63 cents in 2021. By 2024, that climbed to 31.27 cents, however that’s decrease than a decade in the past.
So what number of BP shares would an investor have to generate £100 a month, or £1,200 a 12 months, in passive earnings? As I’m writing, BP’s share value is 434.05p. I count on the full-year 2025 dividend per share to come back in round 34 cents (roughly 24p).
To hit that £100 a month second earnings goal, an investor would wish precisely 5,000 shares (weirdly). At right now’s value, that involves about £21,700.
That’s a hefty sum to position in a single inventory, notably for somebody beginning out. Constructing that place steadily, or higher nonetheless spreading it throughout a number of earnings shares, is a safer method to attain the identical objective over time.
Valuation puzzle
On paper, BP appears to be like overpriced. Its trailing price-to-earnings ratio is a frightening 242, skewed by a 97% earnings stoop in 2024. The ahead P/E of 14.5 is extra wise. For traders making an attempt to make sense of those numbers, brushing up on different strategies of valuing shares might be helpful.
Underlying substitute price revenue (BP’s most well-liked measure) fell nearly 15% to $2.35bn within the second quarter of 2025, however that also beat of forecasts. The dividend was lifted 4% to eight.32 cents a share, and share buybacks continued at $750m. Internet debt stays near $30bn, however with annual revenues nearing $190bn, administration has room to chip away.
BP at the moment has a trailing yield of 5.57%, comfortably above the FTSE 100 common of three.25% right now. If dividends proceed to develop, and traders pump them again into the inventory, the variety of BP shares required to safe £100 a month might shrink over time. In fact, oil and fuel stay cyclical and income could be bumpy, so payouts aren’t assured.
I believe BP’s nonetheless one to think about shopping for, however solely for many who perceive it comes with dangers too.
