Every portfolio should have at least one oil share, right?
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I've been convinced that the Motley Fool Beginners' Portfolio needs an oil share in it for some time, but I've been torn between going for a riskier exploration prospect, or one of the big FTSE 100 (UKX) producers.
What's settled it is that I'm really not much of an expert at analysing the oil exploration business, and a key part of Foolish investing is to avoid buying things you don't understand. So maybe we'll miss some oil strike booms, but we'll also avoid dry well disasters -- instead we'll be set up for nice juicy dividends over the coming years.
What that means is I'm adding BP (LSE: BP), the fourth biggest company in the FSTE 100 and valued at £84.6bn, to the portfolio.
The deal went like this...
It's not a real money portfolio, but our £500 installment got us a virtual 112 shares at a cost of 434.45p each, for a total of £485.58. The usual commission of £10 plus £2.43 stamp duty brought our spend up to £499.01.
Our total investments are now looking like this...
|Company||Buy price||Share cost||Charges||Total cost|
|Vodafone (LSE: VOD)||168.5p||£487.07||£12.44||£499.51|
|Tesco (LSE: TSCO)||305.5p||£485.80||£12.43||£498.23|
|GlaxoSmithKline (LSE: GSK)||1,440.5p||£489.77||£12.45||£502.22|
|Persimmon (LSE: PSN)||617.9p||£488.11||£12.44||£500.55|
|Blinkx (LSE: BLNX)||36.94p||£487.24||£12.44||£499.68|
Why BP and not Royal Dutch Shell (LSE: RDSB)? Well, to be honest, I don't think there will be much difference in the performance over the next couple of decades -- or at least if there is, we have no way of telling now.
But BP shares seem a bit depressed at the moment, with a $5bn writedown of US assets announced this week, and though we're in this for the long run, there's nothing wrong with taking advantage of short-term weakness when we see it.
Current forecasts put the shares on a prospective price-to-earnings (P/E) ratio for the year to December of 6.7, falling to just 6.5 for 2013, which is less than half of the FTSE 100 long-term average of around 14. And we have forecast dividends of 4.8% followed by 5.4%. Both of those are better than Shell's equivalents.
There could still be more costs from the Gulf of Mexico disaster to come, but everyone knows that, and the uncertainty is already factored into the share price. I'm happy to tuck these away, take the dividends and hope for some share price appreciation over the next few years as a bonus.
What's next for the beginners' portfolio? Probably a pause for a recap, and a look at what's been happening to the shares we've bought so far -- I've been following an approach of "strategic ignorance" so far and taking no notice of where their prices have been going in the short term.
Finally, if you want to follow the strategy of buying strong dividend-paying companies like BP, Neil Woodford is an acknowledged expert on it -- the free Motley Fool report "8 Shares Held By Britain's Super Investor" takes a look at some of his major holdings. Click here to get your free copy, while it's still available.
Are you looking to profit from this uncertain economy? "10 Steps To Making A Million In The Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.
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> Alan does not own any shares mentioned in this article. The Motley Fool owns shares in Tesco.