After making the decision to fill up my remaining allocation of my shares ISA with some surplus money I had in my cash ISA (£4,745), see Filling up ISA - Use it or lose it, I now had some share shopping to do!
I'm still in the early stages of Dividend growth investment, and as you can see from my portfolio, I haven't invested in a lot of companies at present. I was planning on spreading out the money I had into 4 companies (£1,186 per company including fees). This would expand the number of companies I owned shares in, and would spread the risk of my investments. My plan was to buy shares in some stable companies, with positive Dividend growth (at least 6%), sufficient dividend cover (at least 1.5), and ideally at a price that is viewed as undervalued.
My second purchase was BP.
I bought 241 shares at a price of 483.25p per share, which came to £1182.40. It paid out a very healthy 4.6% dividend and it had plenty of dividend cover with 3.35 for 2013/2014.
As a dividend growth investor, I was pleased to see an 8% growth in it's dividend from 2012 to 2013. I'm currently looking for shares that show a consistent growth of around 6%. This has now leveled out from the 17% and 38% increase in the preceding years. BP's price is still down 25% from where they were before the Gulf of Mexico Oil spill back in 2010.
I read an article on the Motley Fool UK on how they believe BP to be undervalued, and I would tend to agree. I've picked out a couple of points:
Once the current dark clouds have cleared, I think it will become apparent that BP has made real progress since 2010, in both its proven oil reserves and its capital allocation strategy.
BP is one of the lowest-cost oil producers out there, and has switched its aim toward finding fewer projects with the best potential for high returns on investment. This is a strategy that I believe will produce better shareholder outcomes over the long run — and by divesting lower-margin projects, it should free up more cash to return to investors.
In the meantime, if you’re looking to boost the tax-free dividend income your ISA can provide, you could do a lot worse than looking to BP’s 5% prospective dividend yield.
In my view, while BP suffers from operating in a tough industry and already being colossal in size, its cheap valuation could more than make up for this. And if it’s any further comfort, Seth Klarman — the famous value investor who Warren Buffett has described as one of the few hedge fund managers he really respects — made BP his largest equity investment last year.
BP were paying $0.56 a share back in 2009, prior to the spill, it then went down to $0.21. You can't always account for events like this. The dividend has now shown growth every year after this. I believe there's a lot of dividend and stock growth to be had with BP. I'm also encouraged by the 4.5-5.0% dividend payout.
Thank you for reading!
Labels: Stock Purchase
