£500 buys 109 shares in this 5.3%-yielding passive income stock!
The FTSE 100 is home to loads of amazing stocks paying generous levels of passive income. One that stands out to me is BP (LSE:BP.), with a potential return of 5.3%. This is over twice that of the index and more than can be earned from a high-interest savings account.
It means someone with £500 to spare could earn £26.50 in dividends. Does this make it a âmust haveâ for income investors? Letâs see.
Cash is king
Although dividends are a distribution of profit, they are paid in cash. And as any accountant will tell you, earnings can be very different to actual money. BPâs a good example of this.
The oil giant has just reported a replacement cost (RC) profit of $1.1bn for 2025. Its operating cash flow (OCF) was $24.5bn.
The massive difference between these two numbers is explained by movements in working capital affecting cash, and the exclusion from RC profit of the impact of changes in energy prices on the groupâs inventories. Not surprisingly, the price of oil has the biggest impact on performance.
For those with a statistical mind, thereâs been a 96% correlation (near perfect) relationship between the benchmark price of Brent crude oil and BP’s cash flows from 2018-2025.
| Year | Brent crude ($ per barrel) | Net cash from operating activities ($bn) |
|---|---|---|
| 2018 | 71.34 | 22.9 |
| 2019 | 64.30 | 25.8 |
| 2020 | 41.96 | 12.2 |
| 2021 | 70.86 | 23.6 |
| 2022 | 100.30 | 40.9 |
| 2023 | 82.49 | 32.0 |
| 2024 | 80.52 | 27.3 |
| 2025 | 69.14 | 24.5 |
In 2020, at the height of the pandemic, BPâs OCF was $12.2bn. To help preserve cash, it cut its dividend by 50%. This is a valuable reminder that nothing should be taken for granted when it comes to payouts, especially for a company that faces a huge number of operational challenges on a daily basis.
On the turn
However, since 2020, the groupâs dividendâs been rising steadily.
For 2025, 32.96 cents (24.2p at current exchange rates) has been declared. Its final quarterly payout is 79% of what it was before the 2020 cut. With a current (13 Feburary) yield of 5.3%, it makes BP the eleventh most generous FTSE 100 dividend payer.
For context, the group paid $5.1bn in dividends in 2025. This suggests thereâs plenty of headroom.
And as a reminder of how effective reinvesting dividends can be, someone buying £500 of shares today could grow this to £1,818 (a 263% return) over 25 years, assuming the group can maintain its present yield.
A new strategy
In a change of approach, the groupâs decided to suspend its share buybacks. Instead, itâs going to use its surplus cash to âaccelerate strengtheningâ its balance sheet and to take advantage of its âdistinctive deep hopper of oil and gas opportunitiesâ.
Indeed, the groupâs been working hard to reduce its net debt. It fell by 2% over the course of 2025, but itâs expected to fall more significantly over the coming months as the group continues to dispose of some of its non-core assets.
BPâs been struggling for identity lately but the direction of travel now appears clear. Itâs going to focus more on its hydrocarbons business. When Meg OâNeill, the groupâs new boss, takes over in April, I suspect she will be pleased that much of the heavy lifting has begun. All of the groupâs recent actions â improving its cash flow as well as reducing its costs and borrowings â have, in my opinion, made BPâs dividend more secure than previously. Thatâs why I reckon itâs an excellent passive income stock to consider.
The post £500 buys 109 shares in this 5.3%-yielding passive income stock! appeared first on The Motley Fool UK.
Should you invest £1,000 in BP p.l.c. right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP p.l.c. made the list?
More reading
- BP share price falls as buybacks are suspended â but is the market focusing on the wrong story?
- See what £10,000 invested in resurgent BP shares 1 month ago is worth nowâ¦
- How much would an ISA need to be worth for someone to aim for a £10,000 annual passive income?
- £100,000 in savings? Here’s how to target a £10,000 passive income!
- Prediction: in 12 months the surging BP share price and dividend could turn £10,000 intoâ¦
James Beard has positions in Bp P.l.c. 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.
