With just one day left before the ISA deadline, I am keen to shelter as much money from the taxman as possible. For me, the best way to achieve this is to invest in a Stocks and Shares ISA. As long as I get the money into such an account by tomorrow, then I can decide where I want to invest later.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
So, where am I investing my money? Mostly, in FTSE 100 stocks, including BP (LSE: BP).
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Although BP’s share price has yo-yoed lately on the back of a number of factors, I have been slowly adding to my position. So why does this FTSE 100 oil giant remain one of my favourite conviction stocks?
Oil crisis looms
For some time, I have remained convinced that the set up for the oil and gas industry is the most favourable in decades. One has to go back to the oil crisis of 1973-74 to find a similar macro setup to today.
As inflation began to build in the economy in the late 60s and early 70s, the subsequent oil embargo of 1973 sent shock waves through the world economy, ultimately leading to a double-dip recession.
Today, the war in Ukraine and the reopening of the economy following Covid are just the tip of the iceberg.
Peak oil?
The macro imbalances that have been building in the economy stretch back several years and boil down to two interrelated themes:
- The unintended consequences of ESG – growing public concern about climate change has resulted in governments preventing companies from exploring, developing, and producing much-needed energy. For example, consider Shell’s decision to pull out of the Cambo oilfield development in Scotland.
- Chronic underinvestment in natural resource industry – It amazes me to consider that as the price of oil has soared, capital investment by the oil majors in both the FTSE 100 and S&P 500 is so low. Anyone would think we were in a bear market for the industry.
And it comforts me to think that I am not alone in my conviction. No less an investor than Warren Buffett has been buying oil stocks. He recently spent billions of dollars acquiring shares in Occidental Petroleum.
Does all of the above sound like we are at peak oil? I don’t think so.
Huge share buybacks
BP’s dividend yield of 4.3% is no headline grabber, that’s for sure. But this figure masks the true value of the returns earmarked for shareholders.
The company has committed to allocate greater than 60% of free cash flow to buybacks until 2025. It has already announced $4.15bn of buybacks from 2021 surplus cash flow. Considering that the oil price only begun its meteoric rise during the fourth quarter, then I expect even this impressive figure to be dwarfed in 2022. Indeed, the company estimates that if oil was to average $80, that figure could be approximately 70% higher.
The colossal sums of cash flow that the company is generating is also helping it to pay down its debt. With interest rates rising, this is a smart move.
Finally, bumper cash deposits will go a long way in helping it to undertake the largest transformation in its history in to an integrated energy company. Taken as a whole, I will just keep adding to my holdings in BP on any dips.
