BP: A Conservative, High-Yield Buy

08/16/2016 8:00 am EST


Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

This latest featured recommendation operates as an integrated oil and gas company worldwide, explains income specialist Bryan Perry, editor of Cash Machine.

BP PLC (BP) operates in three segments. The Upstream segment engages in the oil and natural gas exploration, field development and production, as well as midstream transportation, storage and processing.

The Downstream segment refines, manufactures, markets, transports, supplies and trades in crude oil, petroleum and petrochemical products. And the Rosneft segment engages in the exploration and production of hydrocarbons.

Back in April, a federal judge in New Orleans granted final approval to an estimated $20 billion settlement, resolving years of litigation over the 2010 BP oil spill in the Gulf of Mexico.

Considering the trough in oil prices and the settlement costs, the fact that BP has maintained its annual dividend of $2.40 per share is a good sign that the company’s management and directors are intent on maintaining the payout.

During the month of June, Morgan Stanley raised its rating on BP to overweight and Citigroup went to a buy rating.

BP reported 2nd quarter earnings of $0.23 per share, $0.18 better than the Capital IQ Consensus of $0.05. BP’s revenues fell 25.7% year over year to $46.44 billion versus the $48.69 billion estimate from a stock analyst.

With the stock trading at $36, the current dividend yield is 6.7% and makes for an attractive addition to the Conservative High-Yield Portfolio.

It is my view that oil prices will recover to $60 over the next one-to-two years and the big integrated oil companies are the safest way to participate with risk capital.

My one-year price target for the stock is $45, which, if it trades there, will still be yielding in excess of 5.0%. Buy BP PLC under $37.

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