FTSE 100 incumbent BP (LSE:BP) released impressive first-quarter results yesterday. Based on this and viewing BP as a potential reopening stock, should I buy shares for my portfolio?
BP’s positive results
Yesterday’s Q1 results were a welcome and timely boost for BP. The FTSE 100 incumbent’s profits were up. A profit of $4.7bn is a major improvement compared to the losses suffered in the same period last year. BP benefited from higher oil prices. The company will be breathing a sigh of relief after the losses in 2020 which were in the main caused by Covid-19 and its impact. Even analysts were unable to predict such profit levels.
The fact that BP has reduced its debt is a good thing and would be a tick in the pro’s column for when I am considering buying shares. Overall, net debt reduced by over 30% compared to last year. Furthermore, it reduced 14% from the previous quarter. What I liked about the reduction of debt is that in an uncertain world economy, it is paying off debt which shows a good set of priorities. It could have easily sat on profits and left it in the coffers.
For & against buying shares
Looking at the case for buying BP shares for my portfolio I first look at the dividend. This currently stands at over 5%, which is healthy. There are better FTSE 100 yields out there, I must admit. BP, however, has a long history of paying dividends. The past doesn’t guarantee the future but it is an indicator for me personally. Improved performance could mean this dividend payment could continue in the future.
Next, demand for oil will benefit BP and its performance. The world economy is attempting to restart and open up and I believe the demand for oil will increase exponentially. One of the biggest sectors that could help BP is the beleaguered travel sector once it gets off the ground once more. I expect BP to benefit as the travel sector begins to reopen.
What puts me off buying BP shares is the Covid-19 pandemic. The pandemic is not over as I have noticed in the recent news of a major breakout in Asia. If a third wave struck the rest of the world, BP could be affected and be in a similar position as last year and become loss-making. Furthermore, if restrictions on travel occur once more, the travel sector may not resume operations, affecting demand for oil.
My verdict
Right now, I would buy BP shares. There are other FTSE 100 shares that tempt me along with BP but its history of paying dividends, its recent performance, and current price point are what help me make my decision. As I write, BP shares are trading for just over 300p per share. This is only 3% higher than this time last year. More importantly, however, it is still well below pre-crash levels.Â
I am aware of the implications of further impact from the pandemic but I am willing to look past that for now and keep an eye on developments. Away from the FTSE 100, I really like Boohoo as an opportunity for my portfolio too.