A popular way of doing that is to invest in a spread of FTSE 100 companies, inside a Stocks and Shares ISA. UK blue-chips pay among the most generous dividends in the world. Some yield as much as 5%, 6% or 7%, with potential share price growth on top. 

That £692 adds up to £36,000 over a full year. Generating the capital to fund that income will take time, but can be done with discipline and patience. Better still, inside an ISA there’s no tax to pay. So it’s worth more than it seems.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Can I really earn that level of income?

Investing is riskier than leaving money in a Cash ISA. But history shows long-term returns are much higher. Over the last decade, the average Stocks and Shares ISA returned 9.5%, against just 4% for the average Cash ISA. My table shows how the difference builds over the years. After a decade or two, it’s massive.

Cash ISAs work best for short-term savings, rather than long-term wealth-building. Ideally, investors should ideally aim to build a balanced portfolio of at least a dozen stocks from a spread of sectors. One FTSE 100 stock that’s done well lately is oil and gas giant BP (LSE: BP).

The BP share price is up 40% in the last year, and 70% over five years. Long-term investors have got plenty of dividends on top, with the stock typically yielding around 5% in that time. Following the share price surge, the trailing yield has slipped to 4.5%. That’s still a pretty good rate of income.

So how big a pot do I need?

Of course, not every investor would want to buy BP. Fossil fuels are a controversial area. Also, BP has bungled its strategy, making a shift into renewables, then beating an embarrassing retreat. The crisis in Iran has given BP shares a short-term lift. Yet investors are wary, because we don’t know what will happen next in the Gulf. If there’s a peace deal and the oil price retreats, BP could slip. That might also offer a buying opportunity.

Despite these risks, I hold the stock myself. Even with the energy transition, the world needs fossil fuels for decades to come. There will be ups and downs in the share price but with luck, the dividends will keep rolling in. I’ve matched BP with different dividend stocks, including Lloyds, insurer Legal & General, pharmaceutical giant GSK and housebuilder Taylor Wimpey. 

So how much do investors need to generate a second income of £692 a week? Let’s say their ISA portfolio returns that annual 9.5% average. In that scenario, they’d need £315,789. Building that kind of wealth takes time, but it can be done. The sooner you get going, the better.

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BP: beginnings in Persia

BP began life in 1909 as the Anglo-Persian Oil Company, later becoming the Anglo-Iranian Oil Company in 1935 and then the British Petroleum Company in 1954. After merging with US rival Amoco in 1998, it briefly became BP Amoco before rebranding to BP in 2000.

For decades, BP was owned by the British state and its people. In 1977, the UK started selling off its stake to private investors, including a disastrous sale to the public coinciding with the Black Monday stock-market crash of 19 October 1987. Since then, BP has been a stalwart of the UK’s elite FTSE 100 index.

What’s fascinating to me is that the share price of this global energy giant has basically gone nowhere since April 1999. On Friday (8 May) the stock closed at 535.6p, around 6% below its closing price 27 years ago. Then again, the shares have leapt 43.9% over the past year and 70.8% over five years, again excluding dividends.

BP: bouncing price

That said, BP shares have been way more volatile than usual so far this calendar year. The good news for shareholders is that the share price has jumped 23.8% in 2026, with much of this bounce coming after the US attacked Iran on 28 February.

However, the shares have jumped around from a 2026 intraday low of 413.3p to a peak of 609.4p on 31 March. That’s an unusually wide range in a little over four months. What’s the cause? Three factors — the oil price, the US/Israel-Iran war, and the pronouncements of President Donald Trump — are driving the price up and down.

With the latest Middle East war settling into an uneasy stalemate, the BP price has dropped 12.1% from its March high. Meanwhile, the oil price has dipped by only 3.4% over this timeframe. To me, this suggest that BP’s valuation may have got a bit ahead of itself in March’s buying frenzy.

BP: bigger price?

Speaking of valuation, BP’s current market value stands at £84.6bn, making it a FTSE 100 heavyweight. Rising quarterly dividend payouts have boosted this stock’s dividend yield to 4.6% a year. That’s well ahead of the wider Footsie‘s yearly cash yield of roughly 3%.

In my view, the shares look like a simple binary bet on the Iran war and the oil price. If the conflict drags on, then problems in the Strait of Hormuz could crimp global oil supply and pump up oil prices. Conversely, if the war ends swiftly or convincingly, then falling energy prices could drag down BP’s valuation.

My family portfolio holds BP shares, having paid 484.1p a share for our stake in August 2023. Given the healthy income they pay, plus their use as a hedge against rising energy bills, I will hold on tightly to this shareholding for now. Likewise, value investors could consider buying BP stock for its healthy dividends and exposure to oil and gas prices.

The post Here’s why 2026 has been bumpy for the BP share price appeared first on The Twelfth Magpie.

But is the market still treating the oil major too much like a simple bet on the direction of oil prices?

In my opinion that view may be too narrow. I see its earnings profile as far more complex — and in some cases even benefiting from volatility.

Oil proxy

While oil prices clearly matter over the longer term, they don’t translate into earnings on a one-to-one basis. The relationship between headline commodity prices and reported financial performance is more complex than many investors assume.

That creates a disconnect. The market often reacts as though the company’s earnings move directly with daily oil price fluctuations, when in reality the transmission is more indirect and uneven.

Understanding that gap is key to assessing what really drives the investment case.

To see why, it helps to look at how the business actually generates its earnings.

Earnings don’t move in step with prices

Reported earnings are not a simple reflection of spot oil prices. Instead, they are shaped by timing effects, contract structures, and pricing mechanisms that mean changes in crude prices don’t flow through immediately — or evenly — into financial results.

For example, the company noted during Q1 that some Gulf of America sales are priced on a one-month lag, meaning current oil price movements may only appear in earnings in later periods. Similar timing effects occur across its trading and production portfolio.

Refining adds another layer of complexity. Margins are influenced not just by crude prices, but also by product spreads, freight costs, and regional differentials. As a result, realised margins can diverge meaningfully from widely watched industry indicators.

The key point is that BP’s earnings are staggered and multi-layered, not a direct mirror of day-to-day oil price movements.

What’s the verdict?

Even if BP is more complex than a simple oil proxy, it’s still exposed to structural earnings volatility.

Upstream performance remains tied to commodity cycles over time. Refining margins can swing sharply depending on product spreads and regional differentials, while trading results add another layer of variability. In other words, complexity doesn’t equal stability.

That matters because it feeds into how the market values the business. Earnings are inherently difficult to forecast, and cash flows can be uneven from period to period.

As a result, oil majors trade as much on sentiment as fundamentals. That raises an important question for investors: even if the market misreads the earnings structure, will that mispricing actually correct?

In other words, complexity may reduce the simplicity of the ‘oil bet’ narrative — but it doesn’t necessarily remove uncertainty, either in earnings or in valuation.

For me, that mix of volatility and visibility is exactly the point. I view BP as a portfolio hedge. Its exposure to energy shocks and inflationary cycles offers diversification, while cash generation and dividends behave differently from broader equity market drivers over time.

That’s why I continue to hold it as part of my portfolio, and view it as one to consider.

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Last Thursday (28 April) was particularly volatile for oil, with Brent crude rocketing to $124 a barrel. It’s since retreated to $112 but Macquarie Group warns it could hit $200 if the Iran war drags into June. Despite the threat, BP shares are down 5% in the last month. That’s very odd. Here’s what I think is happening.

Why is this stock slipping?

First, the FTSE 100 oil giant has had a jolly good run. Its shares are up an eye-popping 61% in the last year. Investors may be reluctant to bid the stock even higher. Also, people will have noted that whenever Donald Trump declares good news in the Gulf, the oil price quickly dips, and so do BP shares. We’d all love to see the conflict speedily resolved so the bombing can stop and the oil price retreat, but the impact on BP shares would be brutal.

This is therefore a risky stock to buy with a short-term view. It could slump if the conflict is resolved, even though it’ll take months to restore oil supply

Iran could hit the long-term case

There are long-term threats too. The Iran crisis has reminded us that the world still runs on oil. But it’s also shown consuming nations just how vulnerable they are to bottlenecks in the most geopolitically sensitive shipping passage in the world. This could accelerate the shift away from fossil fuels and towards home-grown renewables.

Also, the war is hitting infrastructure, and BP faces both longer shipping routes and higher operating costs. Its net debt was already a hefty $25.3bn in Q1. There are other concerns: as UK consumers struggle, oil giant profits could make a tempting target for politicians, and BP could face even tougher windfall taxes.

So is it too risky to buy at today’s price of 575p? It does have a modest forward price-to-earnings ratio of just 8.5. But 2026 earnings could prove highly volatile, so we shouldn’t rely too much on that. So here’s the case, as I see it.

What should investors do?

Investors are wary of buying BP after such a strong run and fear making a quickfire loss due to an event they simply cannot predict: the outcome of this war. Many suspect the big gains have already been made, and today’s buyers risk making outsized losses. Even a 4.3% trailing dividend yield doesn’t compensate for that.

I’m delighted to hold the shares myself, but reluctant to buy more given today’s uncertainy. This volatile stock market has thrown up plenty of buying opportunities, and most are a lot less binary than this one. I’ve just bought two FTSE 100 stocks in an entirely different sector. But I’ll be keeping a close eye on the BP share price, as we may be handed a tempting entry point in the weeks ahead.

The post Oil could hit $200 so why is the BP share price falling? appeared first on The Twelfth Magpie.

Price is just a function of supply and demand that changes constantly. But value reflects the enduring fundamentals of the underlying business. So in fact, a share may have rocketed in price, but there could still be enormous value left in it. Does this apply to BP?

Is it undervalued?

A good starting point to ascertain value is comparing a stock’s key metrics with those of its competitors. In BP’s case, to begin with, it is still bottom of its peer group on the key price-to-sales measure. Its 0.6 rating is way behind its competitors’ average of 2.2. These firms comprise Shell at 0.9, ExxonMobil at 1.9, Chevron at 2, and Saudi Aramco at 3.9.

So it is indeed significantly undervalued on this measure, despite the recent share price surge. It also looks a bargain on its 2.2 price-to-book ratio against its peer group’s average of 2.6.

Where ‘should’ the shares be priced?

Discounted cash flow (DCF) analysis identifies the price at which any share should trade (its ‘fair value’). It does this by projecting future cash flows and ‘discounting’ them back to today. The more uncertain earnings forecasts are, the higher the return investors demand and the greater the discount applied.

Analysts’ DCF modelling varies — some more bullish than mine, others more cautious — depending on the variables used. However, my DCF modelling — including a 7.3% discount rate — shows BP shares are 59% undervalued at their current £5.73 price. This implies that BP’s fair value could secretly be around £13.98 — more than double where the stock trades today.

Asset prices typically gravitate towards their fair value in the long run. So this suggests a potentially terrific buying opportunity to consider today if that modelling proves accurate.

Supported by business fundamentals?

A risk for BP is any extended bearish trend in oil and gas prices, which could squeeze its margins. Another is a failure in any of its major energy‑transition projects. This could pressure free cash flow if returns take longer than expected to materialise.

Nevertheless, analysts forecast BP’s earnings will grow by a whopping yearly average of 21% to end-2028, at minimum.

The most recent trading update (Q1 2026) saw underlying replacement cost profit soar 132% year on year to $3.2bn (£2.4bn), driven by higher realised margins and an exceptional oil trading contribution.

Operating cash flow increased 1% to $2.9bn. The huge number reflected the group’s ability to keep generating cash even after setting aside $6bn for short‑term working capital.

My investment view

Despite BP shares trading near a 16‑year high, the stock still looks deeply undervalued on both peer comparison and discounted‑cash‑flow measures.

The latest trading update shows clear earnings momentum building, with stronger margins, higher realisations and an exceptional oil‑trading result all pointing to a firmer profit outlook. Taken together, this combination of undervaluation and improving fundamentals is why I am looking to buy more shares as soon as possible.

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The move ends nearly 60 years of membership, and was described by one analyst as “the beginning of the end of Opec“. The UAE is the third-largest producer in the group of 12 countries and will exit the group on 1 May.

So what does it mean for British energy shares — and should investors be concerned?

Volatility, as usual

The UAE’s exit may be bad news for Opec, but it’s not an immediate disaster for British energy investors. For FTSE energy shares such as BP (LSE: BP) and Shell (LSE: SHEL), the key issue is still the oil price.

A weaker Opec will probably lead to supply problems, which ultimately means volatility and higher crude oil prices. That’s not an ideal situation (as everything gets more expensive), but it can mean more cash flows for oil producers while prices stay high.

Essentionally, for energy stock investors, the gains could offset higher expenses elsewhere.

Should UK investors do anything?

BP and Shell tend to benefit when crude prices rise, with Reuters recently highlighting that BP’s results are particularly sensitive to oil-price volatility. Shell’s profits similarly move with weaker or stronger oil and gas prices but to a lesser extent.

That means the UAE’s departure could be mildly positive for earnings if it helps keep oil elevated. But it could also raise the risk of sharper price swings that make forecasts less reliable.

For UK investors, this is more a market structure story than a direct company-specific shock. BP and Shell are both diversified global businesses, with shares are driven by a number of factors aside from Opec membership, including:

• Oil prices.
• Gas prices.
• Trading performance.
• Share buybacks.
• Capital returns.

In the greater scheme of things, this isn’t a huge development. UK energy shares have already suffered volatility from this year, rising when crude jumps and weakening when higher oil prices drive inflation worries.

So what’s the likely impact?

In the near term, the UAE leaving Opec could be:

• Positive for BP and Shell if traders price in tighter supply and higher crude prices.
• Negative for consumer-facing parts of the FTSE if higher energy costs feed inflation and pressure sentiment.
• Neutral overall if the market decides the move simply adds volatility without changing actual supply that much.

In reality, the foundational picture remains the same, with the key risk being disruption at the Strait of Hormuz. To that end, performance will depend on how each individual company meets the challenge.

BP has already boasted about exceptional trading conditions, while Shell has kept buybacks and is still shaping its portfolio through deals.

The key takeaway?

Overall, I don’t see any reasons for investors to be too concerned. The UAE’s exit probably makes the oil market more unpredictable, and that can cut both ways for UK energy shares.

It may lift earnings while prices are strong, but it also increases volatility risk and valuation noise. So for long-term investors, I’d say it’s sensible to focus on balance sheet strength, dividend cover, buybacks and oil-price sensitivity.

The Opec story might make for sensational headlines but it’s certainly no reason to panic.

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As a rule, a rising oil price is good for energy stocks. At the start of the crisis, Brent crude traded at just over $60. Today, it’s at $114. If the war drags on, analysts say it could top $120. So how have BP and Shell shares responded?

Since the war began on 28 February, the BP share price is up around 20%. Shell is more sluggish, up a modest 7%. Given that we’re supposedly facing the biggest energy supply shock in history, I expected better. Here’s what I think is going on.

Why aren’t these FTSE 100 stocks doing even better?

First, the higher oil price hasn’t shown up in profits yet. BP reported yesterday, but its Q1 results ran to 31 March, so they only caught the early stage of the spike. Second, investors have broadly accepted Donald Trump’s assurances that the war is under control. Nobody wants to go big on BP and Shell, only for the Strait of Hormuz to reopen next day. Their shares will plunge as a result.

There’s a longer-term worry. The oil shock might ultimately rebound on Big Oil. It could trigger more windfall taxes, and persuade import-dependent countries to accelerate their switch to renewables. Nobody is taking anything for granted. Yet one thing is clear. BP and Shell have been terrific investments lately.

Over the last 12 months, their shares are up 60% and 34%, respectively. If an investor had split a £20,000 Stocks and Shares ISA equally between them one year ago, their BP stake would be worth £16,000 and Shell £13,400. But that’s not all they’d have.

BP has a trailing yield of 4.25%, with Shell’s at 3.25%. That lifts their total returns to roughly £16,425 and £13,725, respectively. In total, the two energy giants have turned a £20,000 ISA investment into £30,150, in just one year. That shows the supreme wealth-building power of shares. But can it continue?

They’re risky, but are they rewarding?

Given today’s high oil price, there’s a good chance of more rewards. Yesterday (28 April), BP said underlying replacement cost profit more than doubled from $1.5bn to $3.2bn in Q1, boosted by its busy trading division. Yet there are still challenges. Net debt rose by $3.1bn to $25.3bn, the board said, “primarily driven by lower operating cash flow”. Shell’s debt is higher still, climbing $6.9bn in 2025 to $45.7bn. However, it’s the bigger company, with a market cap of £184bn versus £83bn.

BP has been the messier story, lurching into renewables then back out again, with boardroom issues along the way. Its shares trailed Shell for years but are now playing catch-up, which helps explain recent superior gains.

As ever, there are risks. The Iran conflict is unguessable. A global recession could hit oil demand. The UAE is pulling out of OPEC, which could boost supply and squeeze prices in the longer term. And there’s climate change. BP and Shell remain high-risk, high-reward stock opportunities. I think both are well worth a closer look, for investors who have a taste for excitement – and dividend income.

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Which is a pretty incredible return, for a company that’s been dogged by boardroom controversy and strategic issues. Its success raises an obvious question. Is it too late to buy this high-flying FTSE 100 stock?

Can this FTSE 100 star continue to shine?

This morning (28 April) brought yet more good news for BP investors, as we learned that underlying replacement cost profit more than doubled from $1.5bn to $3.2bn in Q1. This smashed consensus forecasts of $2.7bn. No prizes for guessing the reason. It’s mostly down to the Strait of Hormuz stand-off. BP’s oil trading operations have been a massive beneficiary, as consumers race to secure supplies. Refining margins improved too.

We won’t see the biggest impact from the oil price spike until Q2. Today’s results cover January, February, and March, but the Iran war will only affect the final month’s figures. Q2 numbers are likely to be even better. So does this make BP shares a slam-dunk buy? This is where we need to calm down a bit.

The outlook remains highly uncertain. Nobody knows how the Iran conflict will end. This may partly explain why BP held its quarterly dividend at 8.32 US cents, same as in Q4, and didn’t resume its share buyback programme. Whenever there’s talk of a ceasefire, BP shares wave the white flag.

Also, its upstream production is expected to fall in Q2, due to seasonal maintenance rather than the Middle East, then remain flat across the year. And BP still has plenty of net debt, currently around $25bn.

The long-term impact of today’s crisis is even harder to gauge. While it’s pushing up oil profits today, it may accelerate the long-term shift into renewables. The big oil producers know that, and they aren’t celebrating today’s volatility. There’s also likely to be renewed pressure for an even bigger windfall tax on oil explorers, as the public wrestles with rising petrol and energy prices. Today’s results will only fuel that.

Don’t forget there are dividends as well as growth

Climate change remains another big issue. If the planet continues to warm, political pressure could grow here too. Yet the world is still thirsty for oil, the crisis has shown us that. Not just as fuel, but for food, fertiliser, feedstock, paint, and pharmaceuticals.

With a longer-term view, I think there’s still a compelling investment case here, for investors happy holding oil giants in their portfolio. There’s lots of prospective dividend income too, while the profits surge should give new CEO Meg O’Neill much-needed breathing space, as she sorts out BP’s issues. Let’s hope she uses it well.

BP shares are likely to remain volatile so investors who wish to buy might consider feeding money into the stock, little by little, taking advantage of any dips. Or they could go bargain hunting elsewhere in the FTSE 100. I can see lots of really cheap shares out there today.

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But what does it mean for a share price up 57% in the past 12 months — enough to turn £5,000 into £7,850? Analysts have a short-term target just 5% ahead of the price at the time of writing. Let’s take a closer look.

Cracking quarter

New CEO Meg O’Neill spoke of “another quarter of strong operational and financial delivery,” telling us the company was able to keep “production levels steady despite the ongoing disruption.”

The ongoing disruption is, of course, the conflict in Iran. And as well as threatening supplies, it’s also pushing oil prices up. At the time of writing, Brent Crude is back above $110 again. And that’s not bad news for sellers like BP.

But the company “expects second quarter 2026 reported upstream production to be lower compared with the first quarter 2026.” That’s partly due to Middle East turmoil, but also partly because of seasonal maintenance. And it sounds like full-year upstream production is likely to be “broadly flat compared with 2025.“

How’s the cash?

BP has been a solid cash generator for years. And the company lifted its Q1 dividend 4% compared to the same quarter a year ago. There’s a 4.3% forecast yield on the cards for the full year, comfortably ahead of the FTSE 100 average.

But net debt still stood at $25.3bn, up 14% from the previous quarter. That’s 8.8 times the company’s operating cash flow in the period. But it’s only approximately 21% of BP’s current market cap, so I don’t really see a problem.

On a positive note, the company said it intends to reduce hybrid bond financing by $4.3bn by the end of 2027. Though what the oil business will look like that far ahead — when we have little clue what’s going to happen tomorrow — must surely pile uncertainty on any medium to long-term plans.

What should investors do now?

As investors face what could be a lengthy uncertain spell, it’s hard to know what to take from a single quarter’s results. BP shares are down 15% from their 2026 high in February. But I’m sure the current confusion is holding back broker targets. And I suspect we might see them lifted in the coming months.

Recent events create a stark reminder of the long-term pressure against hydrocarbon use. The current geopolitical mood might favour oil hawks. But just how nice would it be one day to no longer depend on the Middle East for energy?

Saying that, I do see oil as a very important commodity for quite some time to come. And as part of a balanced portfolio — perhaps together with something in renewable energy as a hedge — I reckon investors could still do well to consider BP shares today.

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BP stock gushes

At its 52-week low, BP stock hit 337.65p on 1 May 2025. This would have been an excellent time to buy into the British oil & gas supermajor, with its shares spurting higher since.

On Friday, 17 April, the BP share price closed at 541p, valuing the former British Petroleum at £91.9bn. This makes BP the ninth-largest company in the FTSE 100 index. However, the shares plunged by 43p (-7.4%) on Friday, tracking the oil price south as geopolitical tensions eased.

Despite this, BP stock is up 50.5% over one year and 85.2% over five — easily beating the Footsie over both periods. What’s more, the above figures all exclude cash dividends, which gush freely from BP’s coffers to shareholders’ bank accounts.

BP: big payouts

Disclosure: my family portfolio owns BP stock, having paid 484.1p a share for our stake in August 2023. What made us decide to buy into Britain’s second-biggest energy firm? First, we bought BP shares partly as a hedge against higher oil prices. Second, to collect a share of BP’s gushing dividends.

After this latest sudden slide in the BP share price, the stock offers a market-beating dividend yield of 4.5% a year. This is 50% higher than the 3% a year on offer from the wider FTSE 100.

Moreover, we don’t spend our quarterly BP dividends. Instead, we reinvest this passive income by buying yet more shares. This increases our shareholding, helping to raise our future returns as BP owners.

BP: bumpy periods

Then again, the past five years have sometimes seen rough rides for BP shareholders. The five-year share chart resembles the teeth of a saw, with the price rising and then falling back, only to climb steeply over the past 12 months.

To be honest, I’m not particularly happy after 32 months as BP shareholders. To date, we are sitting on a small paper profit of 11.8% of our initial investment. That’s not a great return for taking the risk of investing in a fossil fuel business. That said, patiently reinvesting our dividends for nearly three years has boosted our returns.

In summary, buying BP shares has largely done what I anticipated. It has delivered market-beating income, while providing a useful hedge against higher energy bills. Nevertheless, this stock has been much more volatile than I’d hoped, as the oil price has bounced up and down since mid-2023.

Finally, I expect energy stocks to remain highly volatile until a lasting truce emerges in the US/Israel-Iran war. If a permanent ceasefire is agreed, then oil prices — and the BP share price — could sink once again. Furthermore, BP still faces the ultimate challenge of moving away from fossil fuels to renewable energy, which will be no easy task!

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