After being forced to payout more than $42bn in costs related to the Gulf of Mexico disaster over the past five years, BP(LSE: BP) isnt the company it used to be.
Whats more, as BP has been forced to sell assets in order to find the cash for these fines, BPs long-term outlook has also taken a hit before the disaster BP was one of the worlds leading renewable energy producers.
Still, throughout the past few years BP has put shareholder returns at the top of its to-do list. BPs management has stated its commitment to the companys dividend payout.
However, although BP is an income champion, the company has been forced to put growth on the back-burner, and thats whereGenel Energy(LSE: GEN)comes in.
Steady growth
BPs production is set to increase steadily over the next few years by around 10%, rising to 15% by 2018.
Almost all of this growth will come from new projects, with the production from older projects set to decline at a rate of around 5% per annum through 2018. At the same time, the company is looking to widen the reported profit margin, or netback, on every barrel of oil produced.
BP is going for quality over quantity, and this is a great strategy. Higher profit margins should safeguard the companys dividend payout and allow the group to de-leverage its balance sheet. City analysts believe that the companys shares will support a yield of around 5.5% this year and 5.7% during 2016.
But according to the same group of City analysts, BPs future earnings growth leaves much to be desired.
Current figures suggest that BPs earnings per share will jump by 80% this year to 24.3p and a further 33% next year to 32.5p. Based on these figures, BP is trading at a 2015 P/E of 19.1 and 2016 P/E of 14.4.
However, much of this growth is to do with the rising oil price. This time last year analysts were predicting that BP would report 2015 earnings per share of around 80p thats a huge difference.
Output growth
In stark contrast, Genels earnings growth is being powered by output growth alone.
Genel is in the process of ramping up production and cutting costs. The companyis planning to slash costs by around 40% this year, which should help keep profit margins healthy while the price of oil remains depressed.
And with the groups production cost somewhere in the region of $20 per barrel at its fields in Kurdistan, Genel is better placed than most to ride out the weak oil price.
Moreover, when the price of oil rebounds, Genels earnings should charge higher.Indeed, City analysts are already predicting that Genels earnings per share will jump by 110% during 2016. The company is set to profit from a double-whammy of higher oil prices and increased production.
Genel has a cash-rich balance sheet, so, unlike BP, the company has no need to save cash in order to reinforce its balance sheet. With this in mind, Genels management could be planning a regular dividend payout in the near future.
Income and growth
Overall, BP is a great income play and the company is expected to grow at a steady rate for the next few years. Genel, on the other hand, is set to grow rapidly over the next year or two.
So, buying the two companies for your portfolio could give you a sustainable income from BP, with the potential for rapid capital growth from Genel.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Genel Energy. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.