BP gushes on earnings but shares and dividend still look good

No doubt the global recession has been tough on energy companies, but now that oil is back at $80 a barrel, well, it's hard to have much sympathy. Still, if you can't beat 'em, join 'em. BP (BP), as one of the world's largest integrated oil and gas companies, has a bright future, thanks to inexorably rising demand.

The energy giant reported a quarterly profit Tuesday that easily surpassed analysts' expectations. That sent shares up sharply, but they still offer a compelling value. On a forward earnings basis, the stock trades at about a 50 percent discount to the broader market, according to Thomson Reuters, while historically being about 25 percent less volatile. That makes for an intriguing risk-reward scenario.
However, it's the dividend yield that really got our attention. At more than 6 percent, it's a real gusher, and should help keep something of a floor on the stock. True, a too-high yield on a stock or bond is often a red flag, but BP's management allayed fears that it would have to cut the payout to put its cash to use elsewhere next year.

"As yet, there is no guidance on 2010 [capital expenditures]," Collins Stewart analyst Gordon Gray wrote in a report to clients, "but comments from CEO Tony Hayward point to the company's confidence in its ability to meet both its investment needs and its commitments to shareholders."

Take the global economic recovery, a dirt-cheap relative valuation, and a stable, generous dividend, and BP still looks good, even after the post-earnings bounce.

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