BP (LSE: BP) (NYSE: BP.US) shares can be bought today for 460p. That values the company at just 8.3 times earnings forecasts for the year. Last year, the company paid dividends totalling $0.33. Dividends of $0.36 are expected for 2013 -- a prospective yield of 5.1%.
By my calculations, only two companies in the FTSE 100 (Aviva and Royal Dutch Shell) are cheaper on both an earnings and a dividend basis.
BP is currently defending itself in a civil trial in New Orleans. This relates to the company's involvement in the 2010 Gulf of Mexico disaster. If BP's culpability is deemed less than the market is currently expecting, the shares will likely jump immediately.
At this level, the market is clearly expecting a bad outcome for BP.
However, even a large fine could be good for the share price. Markets are typically forward-looking. Any resolution will give investors the opportunity to start looking at more positive future changes at BP.
Since the Gulf of Mexico disaster in 2010, BP has been cementing a new deal in Russia with state oil company Rosneft. This looks to have been secured on far more favourable terms than the old TNK-BP venture. Russia has long been a key market for BP. This new deal should deliver a more secure earnings stream than the previous partnership. Remember -- markets love reliable earnings.
After the trial, I expect that analysts will give more consideration to BP's future in Russia. This could lead to a significant and sustained re-rating of the shares.
There is another reason to expect BP to advance from here.
Just over a week ago, BP announced that it would be using $8bn from its sale of TNK-BP to buy back its own shares. This amounts to around 6% of all BP shares in issue.
A buyback on this scale will help increase earnings per share and dividend per share, as there would be less stock in issue. A buyback on the proposed scale would help secure the expected dividend payout of $0.39 next year, a prospective 5.5% yield at today's price.
BP today looks like a great combination of long-term yield with short-term upside potential. Finding winning income shares is a speciality of top fund manager Neil Woodford. £10,000 invested in Mr Woodford's High Income fund 10 years ago with payments reinvested would be worth more than £30,000 today. To help you learn from this top stock picker, The Motley Fool has prepared a newly updated report on some of Mr Woodford's biggest investments. "8 Shares Held By Britain's Super Investor" is totally free -- to get your copy today, click here.