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Buy BP And Get Paid A 7% Dividend Yield

Summary

BP is committed to its dividend at oil prices in the $50 - $55 per barrel range.

Oil macro uncertainty persists.

Safety in 6.96 percent dividend yield.

Price target: $38 - $53.

With oil making another rally back to the $50 per barrel level, investors may stop waiting for signs the energy sector is stabilizing. At the G20 meeting, Saudi Arabia and Russia's joint statement about an aim for stable oil markets suggests the downturn in the sector is ending. BP plc (NYSE:BP) should stand out to investors seeking income, exposure to the oil sector, and solid capital management. The company already reiterated in the second quarter it would sustain its dividend. So long as oil prices stay in the $50 to $55 per barrel range, BP will dedicate its cash for paying its investors each quarter.

Russia and Saudi Arabia's joint statement on limiting output fell short of action, but still moved oil prices higher by almost 5 percent. Saudi Energy Minister Khalid al-Falih said that "Freezing production is one of the preferred possibilities, but it does not have to happen specifically today."

Two issues undermine the impact of Russia and Saudi Arabia's claim. The U.S. lifted sanctions against Iran. Any output freeze by the former two countries will be offset by Iran raising output. Second, Russia never followed through in cutting output when it made a similar deal with the OPEC producer 15 years ago.

Despite the macro uncertainty in the oil market, BP is still well-positioned if oil markets stabilize. It cut its capital expenditure forecast to $15 billion to $17 billion in 2017. This is down from the $17 billion...


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