Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

September 23, 2009 - BP p.l.c. (BP-NYSE) provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. It operates in three segments: Exploration and Production, Refining and Marketing, and Other Businesses and Corporate.

The Refining and Marketing segment engages in the supply and trading, refining, marketing, and transportation of crude oil, petroleum, and chemicals products to wholesale and retail customers under the Amoco and BP brands.

The Other Businesses and Corporate segment produces and markets rolled aluminum products, as well as generates energy through wind, solar, biofuels, hydrogen, and gas-fired sources. BP p.l.c. has ajoint development agreement with Martek Biosciences Corp. to work on the production of microbial oils for biofuels applications. The company was founded in 1889 and is headquartered in London, the United Kingdom.

BP used to be British Petroleum. It's one of the world's largest integrated oil companies with revenues in 2008 of $365.7 billion. This year, sales are lower with analysts estimates at $223 billion, down 39%. Next year look for a bump to $292 billion, up 31%.

Those numbers reflect the new additions opened this year. Projects opened in the Gulf of Mexico, Indonesia and Russia which raised oil and gas production by 3% in the first half of 2009. Most other oil companies are not reporting higher production. That's one of the reasons the stock price for BP has held up relatively well, compared to its competition. Still, the price foundered in 2008, going from a high of $77.70 to a low of $37.60. In early 2009, it got a little lower, bottoming at $33.70. Since then, it bounced back to $55.

The dividend is $3.36 for a yield of 6.50% which means 90% of earnings are used for the dividend. But this is an unusual year. Last year, the dividend only required 42% of earnings. Next year, if the dividend stays the same, it will take 59%. There should be no problem of continuing to raise the dividend annually, as the company has done since 1999. The most recent dividend was paid on September 7 with an ex-dividend date of August 12. Next payment will be three months from the last dividend date.

The company continues to expand. Captial spending should remain high to support higher production. A number of projects are currently being funded, especially a large, recent discovery in the Gulf of Mexico. Furthermore, a focus on cost reductions and lower prices negotiated with service suppliers should help keep operating and profit margins strong.

To keep expanding, the company had to dip into the debt market. Normally, its free cash flow pays for new projects, stock buybacks, and the dividend, but with lower sales comes lower cash flows. To make up the difference, BP had to borrow. Even with the new borrowings, debt is only 20% of the balance sheet. The company isn't anywhere near to being too leveraged to be a concern. If there is a global economic recovery, the price of natural gas and oil should rebound (especially natural gas). That would eliminate the need for any more debt.

A major new project is being initiated in Iraq. A group, led by BP, won the rights to revive an extremely large oil field there. While this specific deal won't make a lot of money, it should lead to other contracts in that country once it becomes politically stable. It's a little risky but reflects the company's more aggressive push to continue adding to production. The company has been focused more on oil and gas production than refining which explains this Iraq venture as well as a unique joint venture in Russia.

More numbers: Market Cap is $171 billion. Trailing P/E is 14.75 while the Forward P/E is 9.5. Price to sales is .65. Price to book is 1.8. Operating margin for the last 12 months was 5.82% while the Profit margin was 4.37%. Return on equity was 11.6%. Total cash is $8.96 billion making $2.87 in cash per share. Total debt is $36.24 billion or 20% of capital. Current ratio is 1.07. Beta is .72.

Conservative income investors will like what they find if they dig deeper into BP. It's very large, looking to get larger, has plenty of cash flow, and if the global economy recovers, will be well positioned to report much higher profits. And the dividend should only keep getting raised.

Company Web site: www.bp.com

- Ted Allrich