BP Case Study – The Importance Of Dividends

Stock price charts can be misleading. Case in point, BP. Looking at the share price over the past 4 years, BP’s price today is lower today than it was back then. On the face of it, the oil giant appears to have destroyed investor wealth. But looking at the share price on its own can be misleading. This is because the share price doesn’t not include one important factor – dividends!


In order to best understand how dividends affect returns, and can even lead to positive returns when stock prices are falling, we need to look at an example.


We will look at my own real world example of how my BP shares have fared since I purchased them a little over 4 years ago.


As readers of the my journey section of this site will know, BP was my first dividend stock purchase. It is the stock that got the ball rolling on my journey towards financial independence. It is the stock that paid me my first ever dividend. It taught me about passive income and gave me a taste of the wonderful feeling of owning stocks in companies. So I owe a lot to BP and to the lessons it has taught me. And it is an apt example to sue in this case.


I bought shares in BP in September 2015. That oil price had fallen by 60% and BP stock got crushed with it. I bought 538 shares for just under £1,800. The price paid per share was £3.34.


Looking at the price of BP today, it is about £3.40 a share. On the face of it, it looks like I have made no money over the past 4 years of owning the stock. BP looks like dead money. But as mentioned earlier, stock price charts can be deceiving.


BP is a mature profitable company. And as such it pays a dividend. A rather big one at that. BP pays its shareholders a quarterly dividend of $2 billion which adds up to an annual dividend of over $8 billion.


And as a shareholder myself, I am entitled to a piece of that dividend which is in proportion to my shareholding.


Every quarter, money from BP hits my account without fail.


Looking through my notes, these are the dividends BP paid me in the following years:


  • 2015 : £35  (This is less compared to the other years as I bought my shares only in September and therefore only eligible for the the December 2015 quarterly dividend).


  • 2016: £158


  • 2017: £166


  • 2018: £166


  • 2019: £172


In total, I have received a total of £697 in dividends from BP since I first bought the stock. This is a number that will never show up when you pull up the stock price chart of BP. But it is real. In fact it is more than real because whilst the stock price is a per value, these dividends received are actual cash payments that I can use to spend as I wish today.


So what total return have I made from my BP stock over the past 4 years?


Looking at the share price of £3.40 a share today, the total value of my stock at today’s prices is £1,826. Add in the cash payments I have received from BP in the form of dividends and this gives a figure of £2,523. The total value of my BP investments is £2,523 as compared to my purchase price of just a tad under £1,800.


That is a 40% total gain.


Or a gain of 10% per annum!


Not bad for stock that hasn’t moved in price for the past 4 years!


BP is a textbook example of a dividend stock which is building wealth even while the perception exists that shareholders are getting nowhere.


So that next time you research a stock, don’t just look at the share price and be put off. Instead dig deeper and you might just find a gem of a business that distributes torrents of cash flow to its shareholders.

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