Linked here is a PDF copy of my detailed analysis of BP Plc (BP) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: This supermajor integrated oil company (formerly BP Amoco p.l.c.) is the world's second largest publicly owned oil company and the fourth largest U.S. refiner.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. BP is trading at a discount to all but 4.) above. If I exclude the high and low valuation, and average the remaining two valuations, BP is trading at a 26.3% discount. BP earns a Star for trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. BP earned a Star in 4.) above. It's one year dividend growth exceeded its 5-year growth rate. This could indicate the dividend growth rate is accelerating.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. BP earned both available Stars in this section. Its current yield of 5.40% is in excess of the high-yield MMA rate of 4.61% and its NPV MMA Diff. is $22,113.
Other: BP is NOT an S&P 500 Dividend Aristocrat or a member of The Broad Dividend Achievers™ Index. It has increased its quarterly cash dividend payments for 8 consecutive years.
Conclusion: BP earned one Star in the Fair Value section, one Star in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a total of four Stars, which rates it as a 4 Star-Buy.
For some time now I have been looking for a suitable energy company to add to my dividend income portfolio. The numbers have not worked for the companies reviewed up to this point. Though not perfect, BP's numbers have been the best so far. BP's primary blemish is a dividend cut of 20% in 2000 after a 26% dividend increase in 1999. One other concern is the 10-year average historic payout ratio is 60%. However, the last four years payout rate have been reasonable in the 30's. I will continue to perform a qualitative assessment of BP, but early indications are pointing toward a possible April purchase.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of BP (0.0% of my Income Portfolio).
What are your thoughts on BP?
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