In recent days I have looked at why I believe BP (LSE: BP) (NYSE: BP.US) is on danger of plummeting (the original article can be viewed here).
But, of course, the world of investing is never black and white business — it take a confluence of views to make a market, and the actual stock price is the only indisputable factor therein. With this in mind I have laid out the key factors which could, in fact, propel investment demand for the oil giant.
Restructuring measures making heady progress
BP announced last month that underlying replacement cost profit had plummeted 21% during 2013 to $13.4bn, as the effect of lower oil prices, rising costs and exploration write-offs weighed on the bottom line.
In light of these persistent problems — not to mention the likelihood of gigantic financial penalties related to the 2010 Deepwater Horizon blowout — BP is embarking on a massive streamlining exercise to slash expenses.
The oil leviathan has shorn off a multitude of non-core assets in recent years, generating $22bn in the last year alone and with a further $10bn worth planned through to the end of next year. On top of this, BP also plans to limit organic capital expenditure to between $24bn and $25bn in 2014, focusing on only the most potentially-lucrative fossil fuel assets to drive earnings.
Although these measures cast questions over the firm’s growth outlook, many would argue that such purse-tightening is a necessity while structural problems across the industry continue.
Tremendous income prospects on the horizon
BP is an established favourite for dividend hunters owing to its ultra-progressive payout policy. Since the 2008/2009 financial crisis forced the firm to take the hatchet to dividends, BP has grown the full-year payout at a compound annual growth rate of 20.9% since 2010. And City analysts expect the company to keep dividends growing at least during the medium term.
The oil giant is predicted to raise the dividend 8.7% in 2014 to 40.2 US cents per share, with an additional 4.2% rise anticipated the following year to 41.9 cents. These projections create monster yields of 5% and 5.3% correspondingly, smashing a forward average of 3.4% for the complete oil and gas producers sector.
In addition, BP is also keeping its generous share buyback scheme rolling, having bought around $5.5bn of a planned $8bn worth of shares in a programme to be completed by the end of the year. And last October the firm vowed that cash generated from asset disposals would be used “predominantly for additional distributions to shareholders,” a fantastic omen for future repurchases.