LONDON — I’m shopping for shares right now, should I pop BP plc (ADR) (NYSE:BP) into my basket?
When I looked at buying BP plc (ADR) (NYSE:BP) six months ago, I concluded that it offered investors a tank load of uncertainty. The Deepwater oil spill was still lining lawyers’ pockets with black gold, gas and oil prices were down, production was falling, and its shale gas assets looked overvalued. Given all its problems, I naturally concluded that investors should roll out the barrel for BP, and buy it. Was I right to recommend buying BP at £4.37 last October, and would I buy it today?
Following the big share price drop of recent weeks, BP plc (ADR) (NYSE:BP) now trades at just £4.44. It’s been whipped by the oil price and commodity backlash, as emerging market growth falters and the Federal Reserve fumbles for the QE exit. As a massive, vertically integrated energy company, BP has plenty of cushioning against falling energy prices, but it can’t escape the impact altogether.
BP is also taking longer than I hoped to recover from its Gulf of Mexico misery. U.S. lawyers are determined to squeeze every last drop out of BP plc (ADR) (NYSE:BP), but it is fighting back, contesting artificial claims and lawyer misconduct. The total bill will run into billions of dollars, but the share price won’t settle until we know exactly how many billions. BP has also faced European Commission allegations of price rigging, along with Royal Dutch Shell plc (ADR) (NYSE:RDS.B). As if that wasn’t enough risk, it is throwing its forces into Russia, with its 20% stake in Russian state-controlled Rosneft. As history shows, Russia is deadly territory.
Thanks to recent share price falls, BP plc (ADR) (NYSE:BP) now yields a slick 5%, comfortably above the FTSE 100 average of 3.6%. That dividend is covered 1.8 times, but remains exposed to further legal shenanigans. Dividends are paid in dollars, which could be a bonus if the Fed’s threat to taper QE continues to boost the greenback. Better still, you tap into the yield at today’s lowly valuation of just 5.9 times earnings, half the FTSE 100 average of 12 times.