The oil trade’s identified for its boom-and-bust cycles. The long-term efficiency of BP (LSE: BP) shares displays this. Since 2015, this FTSE 100 stalwart has hit highs of virtually 600p – and dropped as little as 200p.

Some traders attempt to time the cycle, shopping for on the backside and promoting on the high. A number of even handle it. However it’s not straightforward.

The low factors are usually accompanied by scary information, making it laborious to purchase. When oil shares are excessive, I typically discover traders explaining to me why it will likely be completely different this time – and arguing that the shares are nonetheless low cost.

The excellent news is that there’s a second option to goal a revenue from BP shares that doesn’t depend on market timing. The vitality inventory’s one of many London market’s greatest dividend payers. The present dividend offers a 5.9% yield and is equal to a payout of about £4bn a yr.

Impressively, that’s lower than half the £10bn in surplus money BP’s anticipated to have generated in 2024. This means to me the payout’s more likely to be protected, even when oil costs do stoop.

Lacklustre returns

Does it make sense to purchase BP shares only for their dividend yield? I made a decision to crunch the numbers. On 16 January, BP shares closed at 413p. As I write as we speak – 10 years later – the share price is 430p.

Clearly, that’s not an awesome end result. However over the identical 10-year interval, BP’s paid a complete of 254p per share in dividends. Which means £10,000 invested in BP shares 10 years in the past can be value £16,560 as we speak, together with dividends.

That’s equal to a 65% return over the past decade, or an annualised return of 5.2% a yr. This isn’t a catastrophe. However over the identical interval, the FTSE 100 Complete Return index (which incorporates all FTSE 100 dividends) has risen 86%, or 6.4% annualised. Buyers may have completed higher merely shopping for an index tracker.

Is BP value contemplating as we speak?

These numbers verify my view that the perfect time to purchase shares in BP is when the vitality sector’s in a stoop and the shares are low cost on a cyclical view.

I don’t suppose that’s true in the mean time. Though it’s true that BP shares have underperformed some rivals over the past yr or so, the group’s earnings stay on the higher finish of their historic vary. That is due to sturdy oil and fuel costs and an improved steadiness sheet.

To contemplate shopping for BP, I’d need a dividend yield of 6.5%, or extra. That means, I wouldn’t be depending on sturdy share price progress to hit my goal annual return of no less than 8%.

Primarily based on the 2024 forecast dividend, I’d want a price of 385p for a 6.5% yield. That’s solely a fall of 10% from the present share price. I reckon it’s fairly doable we’ll see that in some unspecified time in the future in 2025. In spite of everything, over the past 12 months, BP shares have hit a low of 365p and a excessive of 542p.

I’m sitting tight for now. However BP will keep on my watch checklist of shares to think about shopping for in a market stoop.