BP (LSE: BP.) has seen its shares slump and then recover in the past few years. But over the long term, it’s been making loads of cash and paying big dividends. And I’d say that’s made it a top stock for passive income.
The future is less sure, and I see more risk. But I still rate BP as a good stock for earning cash.
What would it take to get £1,000 from BP shares each year?
Healthy dividend
The dividend is quite modest at 3.8% right now, but that’s fine. It means I’d need a little over £26,000. And at today’s share price, that’s close to 5,000 BP shares.
If you’re like me, you might not have £26,000 in your back pocket to plonk down. But if I plan to aim for future income, I could have a fair few years to build it up.
Before I look at that, I want to first think about where the share price might go in the next 10 years or so.
Covid slump
BP launched its net-zero plan in 2020. It came right after the Covid slump, and the share price fell off a cliff. But it looks like people soon worked out that oil and gas shares were here for a while yet.
It still makes up the large bulk of our energy supplies. And I don’t think its end is going to come soon at all. So, the market bought back in, and BP shares climbed back again.
And in the energy crisis this year, the price has gone on up. So what next? Well, I think we could see a lot of up and down from the BP share price in the coming years.
Shares are cheap
But for the long term, I don’t think that matters too much. That’s as long as the share price isn’t too high to start with, and I just don’t think it is.
We’re looking at a low price-to-earnings (P/E) multiple of under eight in the next few years. That’s about half the FTSE 100 average over the long term. So I’d say there’s a good bit of safety built into that.
There’s a 4.5% dividend yield on the cards by 2025. But I’ll start with that modest 3.8% yield, and see how it goes.
£100 per month
If I put just £100 per month in BP shares, I could get to my goal in 16 years. And that’s with no share price or dividend rises over the years.
And I could get there a lot sooner if I can put aside more cash than that each month.
Now, the risk of the slow decline of oil and gas is real, for sure. So I do need to bear that in mind if I buy BP shares.
But my sums assume no share price gains and no dividend rises. So in real life, I hope that cautious approach should offset the risk.
I might well go for BP shares when I have the cash for my next buy.
