Over the past 12 months, the BP (LSE: BP) share price has underperformed the FTSE 100 by approximately 28%. The company’s performance over the past decade isn’t that much better. The stock has underperformed by 4% a year since 2011, including dividends.
However, I think this could be the year that the BP share price finally outperforms the UK’s leading blue-chip index.
FTSE 100 outperformance
BP has faced several headwinds over the past decade, which have held back its performance. The biggest issue the company has faced is the volatile oil price. Since 2014, the oil price has remained below $100 a barrel. This has caused significant problems at the oil major’s operations. Management has had to slash costs and reevaluate capital spending plans to balance the books.
Unfortunately, as soon as these efforts started bearing fruit, the pandemic slammed into the business. BP was forced to take further evasive action to stabilise its business as a result.
The good news is that the oil price has started to recover. It’s eliminated most of its pandemic losses and, at around $57 a barrel, is back on its way to the 2020 high of $63. I think the rising oil price could act as a strong tailwind for the BP share price in 2021.
There are several other reasons why I’m excited about the firm’s outlook for the year ahead. These include BP’s dividend yield, which stands at approximately 5%, and its investment in renewable energy.
The future of the BP share price
The global demand for oil and gas isn’t expected to peak until later this decade. Nevertheless, it’s clear the world is moving away from dirty hydrocarbon energy, and I think companies need to adapt, or they’ll be left behind.
BP is planning to rise to the challenge. The company wants to spend $60bn over the next decade to reach a renewable energy generation target of 50Gw. In the medium term, the group targets 20Gw of generation capacity by 2025.
These targets are some of the most ambitious among Big Oil companies, and I think they’ll be instrumental in driving the BP share price higher in the near term.
Indeed, over the past few years, money has been flooding into renewable energy stocks. BP has missed out on this trend because of its exposure to oil and gas. However, I think that’ll change as the business bolsters its renewable energy footprint. This interest could drive the shares higher, potentially allowing the stock to outperform the FTSE 100.
As such, I think the BP share price could be a good acquisition for my portfolio in 2021. The share isn’t without risk as global governments increasingly focus on green fuel. But the company’s renewable energy investments could increase investor interest towards the business and, in the meantime, I can collect that 5% dividend yield. I also think that rising profits from the group’s oil and gas portfolio as the oil price rises will support additional shareholder returns.
The post I think the BP share price could crush the FTSE 100 this year appeared first on The Motley Fool UK.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021