Sometimes it's good to own an oil giant

Big energy companies are not going away, but picking the right one is key.

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

British Petroleum (NYSE: BP) is one of the largest multinational oil and gas companies in the world, and one that touches almost every aspect of the energy business. With oil prices losing ground recently, investors are naturally worried, but oil is here to stay. With nearly a 7% dividend, a 15-year natural gas deal with South Korea, and strong potential growth, BP is a smart choice for investors seeking growth potential.

Most investors have a love/hate relationship with energy, particularly oil companies.This is because so much industry is affected by the price of oil, and as we all know, oil prices can fluctuate. Whether its' upheaval in the Middle East, attacks (as the recent one in Saudi Arabia), trade wars or oil spills, energy prices can be dramatically affected. Over the past 20 years, the annual closing price of oil has been as low as $20 per barrel and as high as $145 per barrel. Is it any wonder that this sector causes stress to investors?

Oil prices rule

As far as BP is concerned, there are two sides to the story. In my view, the most important factor is the price of oil. As we know, prices can fluctuate dramatically but recent global unrest stand to push prices higher. Any major disruption in oil production would certainly cause prices to rise, and given the tensions in the Middle East -- especially in Iran -- the possibility of higher oil prices in the future exists. With BP's efforts to lower its break-even point (or the barrel price at which BP could only just cover its cost to run the business), higher oil prices will benefit BP's stock price substantially.

Second, it is vitally important that BP is able to sustain its cash flow at current and lower prices. As the Deepwater Horizon disaster payments progress, and rising production after its 2018 Permian Basin acquisitions and better trading performance continue, BP will be better able to survive during softer oil prices. This company's management understands that continuing to lower its break-even point will be important going forward, and plans to sell $10 billion in assets to pay for the BHP deal will certainly help. BP's Chief Financial Officer Brian Gilvary sees this deal as an opportunity to write down debt and boost BP's profitability going forward. 

BP's high dividend yield is key

Investors shouldn't lose sight of the almost 7% dividend. BP's dividend was stagnant for several years, but has been growing again. But this high current payout is exceptional, and not to be ignored. Sustained high income during periods of fluctuation benefits every investor, and can make a huge difference in any long-term investment strategy. Plus, during the good times, which seem to be on the horizon, this healthy dividend is icing on the cake.

Although not the most glamorous part of any analysis, the numbers are important. BP's current PE Ratio is just 14, with earnings estimates for the next year gaining strength. BP continues to seek growth to increase production with new projects and development, and if this goal is reached it will certainly increase cash flow. Its Permian Basin holdings and aggressive approach to more drilling will increase shale production, and this will be important should any global production decrease occur. In addition, BP's plan to sell $10 billion in assets through 2020 will help reduce debt at a time when it is vital.

Growing production with better-than-expected earnings set the stage for better results going forward. Again, the most important factor is the price of oil, but BP is doing much more to solidify all areas of its business. With strong second quarter results, continued debt reduction, increased output, and more geopolitical tension, there's certainly a bullish case to be made for the company. 

The time is right to add BP to any growth portfolio 

BP's price is at the bottom of its 52-week price range, dropping below $37 last week. Strong cash flow and earnings resulted in the second quarter, and future plans are set to continue this trend. This has made this company very attractive, and at this price, it is a buying opportunity. BP is doing all the right things to outperform this market, and with any increase in crude prices, the growth opportunity is exceptional. At this price, it is a buy.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Gary Barnett has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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