2015 has been a terrible year for Big Oil, andBP (LSE: BP) is no exception. Over the nine months to the end of September, BPs shares slumped by 20%but have since recovered some losses. After a near 20% gain since the 25 September, BP is only down 6.1% year to date.
However, if you include dividends BPs total return is only -2.2% for the year, compared to the FTSE 100s total return of -2.1%. So, BP is at least keeping pace with the index.
Nevertheless, for BPs long-term shareholders, the companys performance has been extremely frustrating. Indeed, over the past ten years BPs shares have produced a total return of 0.7% per annum, compared to the FTSE 100s total return of 5.1% recorded over the same period.
Over the past five years, BP returns areat least positive but theyre hardly anything to get excited about. Since the end of 2010 BPs shares have produced a total return of 3% per annum, although once again an investment in the FTSE 100 would have produced a better return for investors. The FTSE 100s five-year total return is 6.3% per annum.
If BPs shares rallied back to 500p, it would alleviate some of the pain shareholders are facing. Excluding dividends, a rally back to 500p would mean that BPs shares had produced a total return of 6.3% per annum for the past five years, level with the index.
And according to my analysis, BP shares are well placed to recover to 500p. You see, BP has transformed itself over the past five years. The company is hardly recognisable after the Gulf of Mexico disaster; it has sold off unproductive assets, built a healthy cash balance and restructured its production portfolio to high-quality assets. This proactive approach by the company means that it is better positioned than any of its peers to weather low oil prices. Moreover, when prices recover, BP is likely to see the fastest recovery in earnings.
That said, its up to the market to decide the price of oil something BP has no control over. Still, if the company can prove to the market that its dividend is sustainable,the companys shares will win favour with income investors.
At present, BPs shares support a yield of 6.8%, almost double the FTSE 100 average. However, if BP can prove that this yield is here to say, income investors will buy in, and keep buyinguntil the yield returns to a more normal level of around 5%. BPs shares would have to hit 520p before the yield reached this level.
Managementis already taking steps to reassure investors that the payout is here to stay. Capital spending has been slashed by a fifth for 2015 and BP has halted buybacks to free up more cash for the dividend.
So, BPs shares do have the potential to return to 500p next year, if the company can prove to the market that its dividend isnt going to be cut any time soon.
If it’s income you’re after, our top analysts have puttogetherthisFREEdividend report, which is designed to help you discover and assess the market’s best income stocks.
The report is essential reading for the serious income investor and highlightsthe five key rulesdividend seekers need to follow tocreate a sustainable income stream from dividends.
Justclick hereto download thefreereport today!
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.
