In additional than 15 years as an investor, I’ve generated loads of passive revenue by accumulating beneficiant dividends from commodity producers. I’ve typically been capable of flip a pleasant revenue once I’ve ultimately bought my shares too.

Nevertheless, it hasn’t at all times been plain crusing. I’ve additionally suffered dividend cuts and one or two nasty share price crashes once I’ve acquired my timings mistaken.

Not too long ago, I’ve been taking a look at shares in FTSE 100 oil main BP (LSE: BP). Shares on this £56bn group have underperformed rival Shell during the last 12 months, falling by 30%. Nevertheless, this hunch has left BP with a tempting dividend yield of virtually 7%.

Why’s BP been falling?

Over the past 12 months, BP’s confronted criticism from activist shareholder Elliott Administration. The American group was sad with its earlier plan to chop oil and fuel manufacturing by 2030 in favour of doubtless much less worthwhile renewables.

BP’s additionally seen its earnings come below stress during the last 12 months, as oil costs have weakened. Dealer forecasts for BP’s 2025 earnings have fallen by 40% since April 2024.

Earnings estimates for Shell, which produces extra fuel, have solely dropped by 16% over the identical interval.

Issues might be altering

In March, CEO Murray Auchincloss unveiled plans to reduce the group’s inexperienced ambitions and concentrate on its core fossil gasoline enterprise.

Chair Helge Lund has additionally introduced that he’ll stand down from BP’s board after a brand new chair has been appointed. I feel this opens the door for brand new management and higher readability on the group’s course.

That would result in an enchancment in enterprise and share price efficiency, for my part. In any case, flip-flopping on technique isn’t actually an excellent search for a FTSE 100 enterprise.

Traders in an enormous firm like BP count on to have a transparent thought of what it would do to generate earnings and help its dividend.

Ought to buyers take into account shopping for BP at the moment?

BP shares fell initially of April when President Trump’s tariff bulletins triggered a pointy fall within the oil price. A barrel of Brent Crude oil now sells for round $66, down from about $75 on the finish of March.

My studying of BP 2024 accounts doesn’t recommend any critical issues. Final 12 months’s payout was coated 1.7 instances by earnings and forecasts recommend an identical stage of canopy for 2025.

If market circumstances stabilise, then I feel the 7% yield on BP shares may present a reasonably protected passive revenue.

Wanting forward, the group’s new concentrate on fossil fuels may assist to enhance profitability. BP’s usually seen by the trade has having good upstream (manufacturing) property and a powerful buying and selling enterprise. This mix could be very worthwhile in the fitting circumstances.

I feel it’s fairly affordable to count on BP shares to get better over the approaching years.

My solely actual concern is that the unsure outlook for the worldwide economic system means we are able to’t rule out the chance of a extra critical oil price crash. In any case, oil traded properly beneath present ranges from 2015 to 2017 and extra just lately in 2020.

On steadiness, I feel it could be price buyers contemplating shopping for BP shares at the moment as a part of a diversified revenue portfolio. Nevertheless, I feel they need to additionally maintain a eager eye on altering market circumstances.