Shares in oil and gasoline big BP (LSE: BP) have fallen by 25% over the past 12 months, leaving this FTSE 100 stalwart with a tempting 6.6% dividend yield.

Nevertheless, whereas BP has lengthy been standard with UK buyers in search of earnings, the corporate doesn’t have an ideal report on this space. The dividend was lower within the wake of the Deepwater Horizon catastrophe in 2010, then once more when oil markets crashed in 2020.

BP can also be beneath stress once more in the intervening time. First-quarter earnings slumped, and business analysts are beginning to marvel if a spell of decrease oil costs might flip right into a deeper vitality market slowdown.

Some buyers are involved concerning the group’s technique. Beneath stress from activist investor Elliott Administration, BP CEO Murray Auchincloss introduced a “reset strategy” earlier this 12 months. He hopes to spice up earnings by pumping up oil and gasoline manufacturing and scaling again spending on renewables.

BP appears like an underdog on this sector proper now. But when Auchincloss can pull off a turnaround, I believe the shares might supply good worth at present ranges.

What are Metropolis analysts saying?

Professional Metropolis analysts comply with giant corporations like BP in big depth. They mannequin money circulate and earnings beneath completely different circumstances to provide estimates of future earnings and dividends.

Whereas these forecasts are actually not foolproof, I discover them helpful as a measure of present expectations. On this case, I’m notably excited about Metropolis forecasts for BP’s dividend.

Listed here are the newest estimates for the subsequent three years:

BP has beforehand stated it plans to take care of dividend development of no less than 4% per 12 months. The corporate has additionally stated the dividend ought to stay reasonably priced down to an oil price of $40 per barrel – effectively beneath the mid-$60s costs out there in the intervening time.

Metropolis analysts appear to be on board with this story, suggesting BP’s dividend might stay secure.

Purchase BP for a restoration?

I reckon BP may very well be price contemplating at present ranges. However I can see a few dangers.

If vitality costs proceed to fall, I believe its funds might develop into a lot tighter. BP would possibly be capable to defend its dividend, however this might restrict its means to spend money on new initiatives to assist long-term development. That would depart the corporate lagging behind rivals sooner or later.

For me, a second danger is that BP didn’t take the chance to chop its debt ranges sufficient when oil and gasoline costs (and earnings) had been a lot greater.  

BP’s internet debt really rose by $4bn to $27bn throughout the first quarter of this 12 months. A few of this may occasionally reverse throughout the 12 months, however Auchincloss’s objective of slicing internet debt to $14bn-$18bn by the top of 2027 doesn’t look simple to me.

Auchincloss is planning to lift money by making disposals, probably together with the Castrol lubricants enterprise. This may very well be a sensible resolution. However promoting belongings for a very good price is more likely to get tougher if vitality costs proceed to fall.

I can’t assist feeling that BP is on the mercy of exterior occasions in the intervening time, quite than being accountable for its personal future. For that reason, I’ll keep on the sidelines for now.