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BP (LSE:BP) shares are back in high demand as oil prices lift off again. At 429p per share, the FTSE 100 fossil fuel giant is up 6.4% so far in 2025, and is the most purchased UK or US share among Hargreaves Lansdown investors in the past seven days.
Yet despite BP’s share price upturn, it still carries a significantly higher dividend yield than most other Footsie companies.
At 6.3%, the driller’s dividend yield for 2025 soars past the blue-chip average of 3.6%. And for next year the yield ticks up to 6.5%.
However, brokers’ earnings and dividend forecasts are known to sometimes miss their mark, both on the positive and negative side. So how realistic are BP’s current dividend forecasts? And should I consider buying the FTSE firm for my own portfolio?
The good
It’s important to remember that dividends are never, ever guaranteed. And that sometimes a crisis comes along that’s so severe it can devastate a company’s payout policy.
After the Covid-19 breakout in 2020, BP cut the annual dividend not once but twice. Even Shell — which hadn’t reduced shareholder rewards at any point since the Second World War — took the hatchet to dividends.
Notwithstanding another cataclysmic event, BP looks in good shape to meet broker forecasts based on potential profits.
For 2025 and 2026, predicted dividends are covered 1.9 times and 2.1 times by anticipated earnings. Both figures are in and around the safety benchmark of 2 times that’s so craved by investors.
The bad
However, a look at BP’s balance sheet paints a less reassuring picture for dividend chasers.
While cash flow remains solid, the business is struggling to get its large debt pile under control. Net debt rose another $1.9bn year on year to reach $24.3bn as of September 2024.
This reflects in part the high capital expenditure that oil exploration, development and production requires. BP spent $12.5bn during the nine months to September, and costs are likely to remain around these levels until the end of the decade at least.
These debts are serviceable right now, as illustrated by BP’s determination to pay market-beating dividends alongside launching further share buybacks. However, this could turn around very quickly if oil prices weaken and company profits come under pressure.
The ugly?
While crude prices are rising today, the outlook for the rest of 2025 — not to mention 2026 — is less than assured. Rising non-OPEC supply and weak Chinese demand both pose an ongoing threat to crude prices. A possible reversal of OPEC+ production curbs also continues to loom large.
As a long-term investor, I’m not just concerned about BP’s dividend prospects over the next two years. I also worry about the oil giant’s capacity to keep paying large dividends as renewable energy demand steadily grows and sales of electric vehicles increase.
The FTSE 100 is packed with shares carrying high dividend yields. Given BP’s uncertain profits outlook and debt-heavy balance sheet, I’d rather choose other large-cap income shares to consider.
