BP(LSE: BP) (NYSE: BP.US) is one of the FTSE 100s largest constituents and also one of the indexs dividend stalwarts. Indeed, at present levels the companys shares support a dividend yield of 5.6% and the payout is covered more than three times by earnings per share. Whats more, BP currently trades at a lowly forward P/E of only 8.8.
However, BPs shares are even more attractive than they first appear as the company is returning huge amounts to cash to investors via share buybacks. After adding in the cash returned via buybacks, BPs implied yield jumps to 8.8%.
BP offers its investors a bit more than just a hefty dividend payout. The companys share buyback plan, which has been in place for some time now, has been designed to return billions to shareholders. Combine these buybacks with the companys hefty dividend payout and the company is second to none when it comes to shareholder returns.
While some investors many not be convinced that buybacks are a good use of company cash, theres no denying that they have their benefits. For example, by returning cash to investors buy acquiring its own stock, BP avoids the double taxation that usually applies to dividend payouts.
Further, buying back stock should increase earnings per share, which should drag BPs share price higher over the long term.
Over the summer BP completed its first mega buyback. The total value of stock brought back was $8bn, the proceeds received from the sale of the companys interest in TNK-BP. On a per share basis this works out as an additional distribution of around 26.5p per share.
And BP has more buybacks planned. The company has laid out plans to sell off another $10bn worth of assets before the end of 2015, with the proceeds earmarked for buybacks. $3.4bn worth of sales have already been agreed it seems as if management are keen to deliver on their promise.
A $10bn buyback funded with asset sale, as well as the $8bn buyback undertaken with the proceeds from the disposal of TNK-BP, BP will have returned $18bn, or around 11.3bn to investors. With just under 19bn shares in issue, that works out at around 59.5p per share.
These are some impressive figures but they become even more appealing when you factor in BPs dividend yield as well. During the past 12 months BP has returned a total of 7bn to investors though both buybacks and dividends. On a per share basis, these cash returns are worth approximately 37p per share, an equivalent yield of 8.8%.
Dividends do best
Hefty dividend yields like that offered by BP,can revolutionise your portfolio’s performance and are a key part of long-term investing.
To find out how you can boost your income via dividend investing, check out the Motley Fool’s brand new, free, no obligation report, which reveals how you can change your life in just20 minutes a month.
The report is designed to help you become one of the UK’sgrowing number of ‘surprise’ millionaires. It could help you create a portfolio that could bring you closer to financial freedom for life.
However, the report is only available for a limited time. Soclick hereto get your free copy today.
Hurry,this is somethingyou do not want to miss.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.