Can diversification protect BP’s business and dividend?
A company that once had the word “petroleum” in its name is looking to be a key leader in whatever comes next for energising transportation.
Long known as Britain’s largest oil producer, BP (LSE: BP) has astutely recognised that the political winds are currently blowing against oil. As a smart company that wants to thrive even as its primary line of operations is under attack, BP is actively investing in adjacent businesses in order to continue to win over time.
BP PLC
Those investments -- combined with the fact that global oil demand is expected to remain strong despite the political pressure -- can go a long way towards protecting BP’s business and dividend. Over the long term, after all, people and products will still need to get from point A to point B. Transportation will require energy and other services regardless of whether that energy comes from oil, electricity, hydrogen, or some other source.
BP’s moves for a changing energy future
One key example of BP’s shift is its recent agreement to purchase the US-based Travel Centers of America. One of the largest highway roadside services providers in the US, Travel Centers of America adds a huge network of near-highway shops and refueling stations to BP’s current infrastructure.
One of the benefits that BP sees from this acquisition is the chance to add electric, biofuel, natural gas, and hydrogen refueling areas to the Travel Centers of America locations. This is possible because the Travel Centers of America sites tend to be outside of dense, urban cores, so there’s often room to add the additional facilities needed to make that a reality. Contrast that with a neighbourhood gas station where a refit for other fuels would likely require a long and expensive shutdown due to limited space.
No matter what the future mix of fuels looks like, chances are very strong that there will be a long period of transition and migration where it would be beneficial to have multiple options. The combination of BP’s desire to be leading whatever the energy of the future looks like with the space to expand that comes with the Travel Centers of America acquisition adds up to a decent chance at a great future.
What about the business?
Of course, it might seem difficult to get excited about owning an energy company that happened to post a net loss of $2.5 billion in 2022. Yet the reality is that BP’s underlying business is far healthier than the lack of a net profit would indicate. That $2.5 billion loss came largely from a $24 billion charge associated with the company’s write-down of its investment in Rosneft.
Rosneft is Russia’s largest gas and oil producer, and BP exited its partial ownership stake in Rosneft in response to Russia’s invasion of Ukraine. The charge from that write-down is a one-time hit to BP’s earnings, plus BP won’t see any future profits from the ownership stake it no longer has.
Still, despite that hit, BP’s core business would have earned it somewhere in the neighbourhood of $21.5 billion if it weren’t for the one-time effect of the write-down. That’s a fundamentally solid business, and it speaks volumes for BP’s “all of the above” strategy of energy supply.
In addition to that still solid operating business, BP pays a quarterly dividend, which as of its last payment was £0.055507 per share. With a recent market price of £4.7995 per share, it works out to somewhere in the neighborhood of a 4.6% yield. Note that BP’s dividend does vary each quarter, but the company does prioritise its dividend and plans to continue to increase it over time, assuming its operations support it.
A business that’s looking to be around for the long haul
BP has a decent combination of strong current operations, a vision for where it wants to go for the future, and a program of rewarding its shareholders with cash for the risks they take by investing. That combination makes it worthy of consideration for investors looking for a share of the proceeds from moving people and products around.
At the time of publication, Chuck Saletta did not own shares of any company mentioned in this article.
BP PLC
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Sources – EasyResearch, Oil and Gas IQ, U.S. Energy Information Administration, Yahoo Finance, BP, Scrap Hero, Rosneft, Reuters,
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