It was a challenging year for BP (LSE:BP) share price, down 7.31% in the last 12 months. Most of the damage has come in the last month, when it has fallen 8.23%. At today’s price of 445p, FTSE100 The oil and gas giant’s shares are trading at a 52-week low.

Inevitably, the price of oil is in the spotlight. While BP is more than just an oil explorer, its fortunes are still tied to energy prices. A barrel of Brent crude is now $76.81, down 9.52% from a month ago.

FTSE 100 Falling Star

The price of Brent crude oil is down 10.56% over the year, despite tensions in the Middle East which have so far had no major impact on supply.

The decline is largely due to a slowdown in the global economy, with demand falling in the U.S., Europe and China. Even falling U.S. inventories have failed to boost prices.

BP’s second-quarter results, released July 30, were mixed. The group reported a quarterly loss of $100 million, down from a profit of $2.3 billion in the first quarter. That included $2.8 billion of corrective items, including a $1.5 billion impairment. Management also warned that production could fall in the third quarter.

Fortunately for shareholders, there was also plenty of good news, with free cash flow more than doubling to $4.4 billion. Management is keen to ensure shareholders benefit, raising the dividend by 10% and announcing another $1.75 billion share buyback. BP also paid down $1.42 billion of its debt during the quarter, reducing it to $22.6 billion.

Today, BP stock looks unmissably inexpensive, trading at just 6.61 times earnings. Better yet, yields are back above 5%.

Dividend growth potential

BP changed its dividend after the pandemic, but it has been steadily returning to more respectable levels. Let’s see what the chart says.

Chart by TradingView

Today’s yield of 5.01% is expected to rise to 5.43% in 2024 and 5.83% in 2025. Share buybacks should not be forgotten.

BP could break even with oil prices as low as $40 a barrel, but the higher the better, of course. Energy prices tend to be cyclical, and I prefer to buy stocks in the sector when they are falling than when they are rising. Like today.

Much now depends on the broader economy. Much of the volatility in the U.S. stock market last week was driven by the U.S. Federal Reserve’s decision to keep interest rates on hold in August. Some analysts fear that even if the Fed cuts rates by 50 basis points in September, it will be too little, too slow to prevent a U.S. recession.

I have long-term concerns. BP seems to have used the resistance to net zero emissions to soften renewables, but that problem is not going away. I buy stocks with a five- to 10-year horizon, and in that time, climate change pressures seem likely to grow. But as we saw with electric cars, weaning the world off oil won’t be simple.

Despite these concerns, I think BP stock looks like a great opportunity. At today’s very low valuation, I don’t see the point of waiting for it to get cheaper. I’ll add it to my portfolio when I have the cash.