Could BP shares be the investment of the decade for me?

The future of oil biggie BP (LSE: BP) hangs in balance. Oil and gas demand is expected to lessen over time as green energy sources become dominant. So BP has a plan. It will pivot towards renewable energy now. 

BP’s big pivot

The plan is already at work. Yesterday, BP said that it is acquiring solar projects in the US. BP sees this as a significant step forward in achieving its clean energy target. It also sees at least 8% to 10% returns from these projects. This follows the company’s foray into green projects in European countries like Greece and Portugal, as well as in Australia. It has also invested in offshore wind energy projects. 

BP aims to reduce its oil and gas production by 40% by 2030. To me this sounds like a definite step forward, especially at a time when there is such a heavy policy focus on green energy. 

What’s next for the share price

I reckon it will also be good for the BP share price, which can do with a lift. It has gone nowhere in the last 10 years. Even after its post-pandemic recovery, the BP share price is way lower than the 500p levels at which it started in 2020. 

Besides the question mark on its future, BP’s dividend cut last year has been a possible reason for this. If a share’s price is not growing, I want decent dividends. But even today, BP’s dividend yield is at 4.7%. This does not compare favourably with FTSE 100 utilities like SSE or miners like Rio Tinto, which offer a higher yield and have also shown share price increases. I reckon that if BP’s dividend yield were to become more competitive, it would be more attractive. 

I also think that the BP share price was affected by the lockdowns in the form of lower travel demand, which showed up in its results. The numbers have improved significantly recently as oil prices rose on vaccine development. I think this puts the company in a good place for now. It is buoyed by higher energy demand as the economy comes back to life. At the same time, it is developing its green energy projects at speed. 

Risks ahead for BP

But there are still risks ahead for BP. The transition towards renewable energy can come with its own challenges. For instance, some analysts see lower returns on these projects compared to BP’s projections. Also, huge investments are required for these projects. And their implementation may not always be a smooth ride. 

My takeaway

I think it follows that my passive income from an investment in BP may remain relatively muted as it invests more and the returns are lower. However, green energy shares’ prices have a lot of potential. So as it renews itself into a different business, I think its share price could start rising, possibly even making up for the loss in dividend income.

I already hold shares in BP. When I think about it from this angle, I am tempted to buy some more.