Why I expect the BP share price to keep rising

I remain bullish on the BP (LSE: BP) share price despite this week's 5% retreat. I'll explain why I'm so keen in a moment. But first I'd like to take a look at a smaller dividend stock that's fallen sharply today.

FTSE 250 gold miner Centamin (LSE: CEY) fell by 17% in early trade on Friday. This Egypt-focused firm is profitable, pays a generous dividend and has net cash of more than $400m. So what's gone wrong?

Less gold than expected

On Friday the firm said that ore grades in the current zone of its Sukari mine were "below budget". What this means is that the rock being dug out of the mine at the moment contains less gold than expected.

Ore grades are expected to improve during the second half of the year, but the setback has forced management to cut their forecasts for the year. Gold production in 2018 is now expected to be between 505,000 and 515,000 ounces, compared to previous guidance of 580,000 ounces.

Costs will also be higher. The firm now expects an all-in sustaining cost of between $875 and $890 per ounce, up from $770/oz. previously. Full-year profits will depend on the price of gold, so earnings and the dividend won't necessarily fall as far as these numbers suggest.

Falling knife or value buy?

I'm a bit surprised that today's warning has come just three weeks after the firm's first-quarter results, in which the original guidance was confirmed. I'd like to know what's changed in such a short time.

However, this company does have a fairly good track record of delivering on its guidance. And my calculations suggest that if the price of gold averages $1,300/oz. this year, Centamin could still deliver profits close to current forecasts.

On this basis, I estimate that the stock trades on a forecast P/E of about 14, with a prospective dividend yield of around 5%. It's not without risk, but at this level I'd suggest Centamin could be a speculative buy.

BP could be safer

If you're looking for a reliable 5% yield, I'd be more inclined to choose FTSE 100 giant BP.

The price of a barrel of Brent crude oil has risen by about 15% to $77 over the last three months, driving oil stocks higher. BP shares have risen by about 17% over the same period.

However, oil stocks have fallen back this week on news that Russian and Saudi Arabian oil producers are discussing a possible increase in production.

This could cause oil prices to fall, but I don't think investors need to be too concerned. The 2016 agreement between Russia and OPEC to cut production has been remarkably successful. I believe that any increase in production will be designed only to prevent the oil price spiking higher, which could weaken demand for oil.

I'd buy BP today

BP is expected to report an underlying profit of $10.2bn this year, up from an equivalent figure of $6.2bn in 2017.

The group's dividend is now covered comfortably by earnings. Indeed, recent comments from chief financial officer Brian Gilvary suggests that a dividend increase could be on the cards later this year.

As things stand, BP shares trade on 15 times 2018 forecast earnings, with a dividend yield of 5.2%. I'd rate this as a buy.

Buy-And-Hold Investing

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Roland Head has no position in any of the shares mentioned. 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.