BP p.l.c. (BP): Why are Hedge Funds Bullish on This FTSE Dividend Stock Right Now?

We recently compiled a list of the 10 Best FTSE Dividend Stocks To Buy Now. In this article, we are going to take a look at where BP p.l.c. (NYSE:BP) stands against the other FTSE dividend stocks.

The first half of 2024 has been notable for the UK equity market, as the FTSE 100, the benchmark index for UK company shares, hit a record high. However, stocks tumbled in the first week of June as financial shares mirrored broader losses in European markets. That was mainly due to the political uncertainty that unsettled investors and a slump in industrial mining stocks further dragged down the market. That said, with some time remaining in the general elections, there is still some potential for additional developments and surprises within the UK market. The index is up by nearly 6% this year so far, compared with a 14.3% return of the broader US market

The Bank of England (BoE) was one of the first central banks to begin increasing interest rates after the peak of the COVID pandemic. From December 2021 to August 2023, it raised the bank rate by 515 basis points to a 16-year high of 5.25% in order to address rising inflationary pressures in the economy. According to a Reuters poll of economists, the BoE is expected to begin cutting interest rates in August. Most economists also anticipate at least one more rate reduction this year, despite ongoing high inflation in wages and services. Yael Selfin, chief UK economist at KPMG, made the following comment on the situation:

"While we are seeing some tentative signs of cooling in the labor market, service sector inflation remains persistently high and it is likely the MPC would want to wait until the next set of forecasts and a few more data points before it embarks on its first rate cut."

Overall, UK inflation is expected to remain slightly above the BoE’s target of 2.0% in every quarter until at least the end of 2025, according to the poll. Median forecasts indicated that inflation would average 2.5% this year and 2.2% next year.

After reaching new highs in 2024, the FTSE 100 may attract more investors, particularly those focused on income accumulation. The projected dividend yield of 3.8% for 2024 and 4.1% for 2025 is appealing, especially since these yields surpass the current inflation rate. Analysts predict that the ten largest dividend-paying companies in the UK will return £43.9 billion to shareholders, accounting for 55% of the total dividends from the FTSE 100. The top 20 companies are expected to contribute £57.4 billion, making up 72% of the total dividends.

In 2023, UK dividend growth of 5.4% aligned with the global average, according to a report by Janus Henderson. This increase was driven by substantial dividend increases from banks and oil producers, although it was tempered by lower payouts from mining companies. The report further mentioned that annual dividends in the UK grew to $86 billion in 2023 from over $63 billion in 2020.

While investors gravitate toward American dividend stocks, some of the best FTSE dividend stocks also offer similar investment opportunities.

Our Methodology:

For this article, we scanned through the list of FTSE stocks and picked dividend stocks from the list. From the resultant dataset, we picked the 10 best FTSE dividend stocks with the highest number of hedge fund investors tracked by Insider Monkey as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A large turbine generating power from natural gas, smoke rising in the background.

BP p.l.c. (NYSE:BP)

Number of Hedge Fund Holders: 40

BP p.l.c. (NYSE:BP) ranks fourth on our list of the best FTSE dividend stocks. The British multinational oil industry company reported growth in its net debt to $24 billion in the first quarter of 2024, from $21.2 billion in the prior-year period. Its debt-to-capitalization also grew to 22% from 19.6%. Due to this, S&P Global downgraded the stock's credit outlook to stable from positive. The company's CEO has devised a solution to address its debt by proposing to allocate 80% of excess cash toward dividends and share buybacks. Moreover, the company has announced $1.75 billion in share buybacks. Though this could be good news for income investors, S&P stated that this approach is unlikely to reduce debt, contrary to their previous expectations, despite the current favorable market conditions. The company is trying to improve its cash position as it generated over $5 billion in operating cash flow during the quarter.

That said, Citigroup stated that BP p.l.c. (NYSE:BP) is surpassing most of its oil peers in the oil and gas industry. They believe that the company is perceived as a potential leader in Europe's new energy landscape, particularly after right-wing parties demonstrated significant influence in the recent European Union elections. Citi added that they see the emergence of a profitable and scalable transition business within the company, which could establish the benchmark for the integration of a modern European energy company into progressive equity portfolios.

BP p.l.c. (NYSE:BP)'s adoption of modern technology is evident in its electric vehicle charging division, which is actively seeking to acquire Tesla's supercharging stations across the US. In addition to the infrastructure, BP has committed $1 billion to expand its EV charging network, including hiring the personnel associated with these sites.

BP p.l.c. (NYSE:BP) has a forward P/E of 7.43, which appears low, considering analysts' projections of a 10% annual growth in the company's EPS until the end of 2026. It is one of the best FTSE dividend stocks on our list as the company has been regularly paying dividends to shareholders since 1998. It currently pays an interim dividend of $0.4362 per ADS and its stock has a dividend yield of 4.88%.

BP p.l.c. (NYSE:BP) was a part of 40 hedge fund portfolios, which held in aggregate $2 billion worth of shares at the end of March.

Overall BP ranks 4th on our list of the best FTSE dividend stocks to buy. You can visit 10 Best FTSE Dividend Stocks To Buy Now to see the other FTSE dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of BP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.