Today I am looking at why I believe BP (LSE: BP) (NYSE: BP.US) could prove a canny contrarian pick.
Here are two numbers that I think help make the case.
14 billion
Investing in the oil sector remains a territory only for the brave. A backcloth of surging global production — thanks in large part to US shale output — continues to weigh down the black gold price, exacerbated by signs of slowing activity on the world’s factory floor of China and fears of another fiscal catastrophe in Europe.
For BP and its major rivals, these concerns — combined with the need to boost the balance sheet after the 2008/2009 financial crisis smashed earnings — have prompted a series of widescale asset sales in a bid to de-risk their operations.
BP spun off $38bn in 2012 alone, and late last year announced plans to sell $10bn worth of projects by the end of 2015. Since then the oil giant has bumped this target by an extra $4bn, taking the total to a colossal $14bn.
Not only are these moves prudent given the continued deterioration in the oil price — WTI crude fell to $75 for the first time since the turn of the decade this week — as well as the effect of rising exploration and refining costs, but BP is also having to boost its cash reserves given the uncertainty surrounding how much it will have to fork out as compensation for the Deepwater Horizon spill in 2010.
5.7
Despite an environment of severe revenues pressure, BP continues to offer dividend yields which few other blue-chip companies can match.
Boosted by the vast inflows generated by the divestments mentioned above, BP is also curtailing the amount of capital expenditure it forks out owing to its more focussed asset portfolio, in turn bumping up the payouts it can shell out to shareholders.
As a result BP is anticipated to churn out a total dividend of 39.2 US cents per share, according to broker consensus, up a chunky 6% from 2013 levels. And this is anticipated to advance an additional 3.6% in 2015 to 40.6 cents.
Consequently the company offers a stonking dividend yield of 5.7% this year, destroying a forward average of 3.4% for the FTSE 100 as well as a corresponding readout of 4.1% for the rest of the oil and gas producers sector. And this moves to an even more impressive 5.9% for 2015.