The response to the last bp Insights (the one about waiting for bp shares to hit £5) was genuinely heartening. A few of you got in touch, some to agree, some to gently push back, and one to share a rather impressive piece of tactical share trading that frankly put most professional fund managers to shame.
To everyone who took the time to write: thank you. Feedback like this is what makes writing these pieces worthwhile. And a couple of you raised a point that deserves a proper answer, not a dismissal. The point was this:
“You didn’t mention dividends.”
The argument for waiting
The argument, put simply, is that bp shareholders aren’t just sitting waiting for the share price to move. They’re being paid to wait. Quarterly dividends, often in the region of 5% per year at current prices, provide a tangible, regular income stream. For retired shareholders, particularly those with shares held in tax-efficient structures (a spouse’s name, an ISA, or a low-income scenario), those dividends can feel genuinely transformative.
One reader, and dear client, mentioned receiving tens of thousands of pounds in dividends since retiring. That’s real money. That’s holidays, grandchildren’s school fees, a kitchen extension.
It would be foolish to dismiss that. So I won’t.
But I do want to gently test whether dividends change the fundamental argument, because I don’t think they do.
Total return: the bit that matters
Here’s the concept that underpins everything: total return.
Total return is simply the combination of two things: the change in the share price (capital return) and any income received (dividends). It is the only complete measure of how an investment has actually performed.
Dividends do not come from nowhere. When bp pays a dividend, the cash leaves the company. All else being equal, the share price falls by roughly the same amount on the ex-dividend date. The company is worth less because it has just distributed part of its value to shareholders. You’ve received income, yes, but the pot has shrunk accordingly.
This isn’t a criticism of dividends. It’s simply accounting. A company paying a 5p dividend with a share price of £4.50 is, in the absence of everything else, now a company with a share price closer to £4.45. Your total position hasn’t changed. The money has simply moved from one pocket (shares) to another (bank account).
The question then becomes: what is bp’s total return? And how does it compare to a diversified alternative?
The 2020 dividend cut
There’s something important that tends to get forgotten in discussions about bp’s dividend history: in 2020, bp cut its dividend by more than half.
For decades, bp had been considered one of the most reliable dividend payers in the FTSE 100. Then came the pandemic, the collapse in oil demand, and a strategic reset under new leadership. The quarterly dividend went from 8.34p per share in Q1 2020 to 4.04p in Q2 2020. Just like that, the income that many shareholders had built their retirement planning around was more than halved.
To be clear, bp has since rebuilt and grown the dividend (Q3 2025 was 6.24p per share). But this episode is a reminder that income from a single company is not the same as income from a diversified portfolio. The dividend is a policy decision, made by a board, under pressure from commodity prices, geopolitical events, shareholder activism, and a global energy transition. It can be cut. It has been cut.
A diversified portfolio, spread across thousands of companies, does not carry that same single-point-of-failure risk.
The tax dimension
One of the readers who wrote in made a very astute observation: their dividends are received in a spouse’s name, where they’re a non-taxpayer. So the income arrives largely tax-free.
That’s a smart approach. Where assets can be held in a lower-taxpaying spouse’s name, using dividend allowances and personal allowances efficiently, that can add real value. It’s an example of thoughtful tax planning.
But here’s the flip side. For the many bp shareholders who are additional rate taxpayers (those earning over £125,140), dividends are currently taxed at 39.35%. That’s before even considering that the dividend allowance has now fallen to just £500 per year. So for a significant portion of bp’s employed shareholder base, dividends are actually the least tax-efficient way to receive a return on investment.
Capital gains, by contrast, can be managed with much more flexibility. Timing of sales, use of annual exemptions (albeit also small now), spousal transfers, bed and ISA strategies. There are tools to manage capital returns in ways that don’t exist with dividends, which simply arrive and trigger a tax liability.
The tax argument for dividends only holds in specific circumstances. For many bp employees and senior Leaders, it doesn’t hold at all.
Let’s do the full sum
Tens of thousands in dividends since retiring is genuinely impressive. Nobody is taking that away.
But a dividend received is only half the equation. To know whether bp has been a good investment, we need to add the other half: what happened to the capital over the same period?
If those shares were held from roughly 2019 onwards, the capital value fell sharply before recovering. In 2020, bp shares dropped to around £2.30. So whilst the quarterly dividends were arriving, the underlying pot was shrinking, in some cases dramatically. Add it all together and the total return (income plus capital) for a long-term bp holder has been disappointing relative to most diversified benchmarks.
This isn’t to say the dividends weren’t welcome, or that the decision to hold was necessarily wrong. It’s simply to say that income received doesn’t tell the whole story. The full sum does.
If that same capital had been invested in a globally diversified portfolio over the same period, the shareholder might have received less in visible, named dividend income (our model portfolio, for example, yields around 1.8% in dividends, so it’s lower but not zero), but significantly more in overall wealth.
So what’s the takeaway?
Dividends matter. Income matters. Tax efficiency matters enormously. We are not dismissing any of this.
But dividends don’t change the fundamental argument. If the total return from a concentrated bp holding (capital plus income) lags what a well-constructed diversified portfolio could deliver at lower risk, that’s the comparison that matters most.
Our job is to help you evaluate the whole picture: total return, risk, tax, flexibility, and how your investments connect to your actual financial plan. Sometimes that means holding bp shares. Sometimes it means diversifying. It always means looking at all the numbers, not just the most visible ones.
To everyone who emailed back: this is exactly the conversation we should be having. Thank you for pushing back. The best financial planning happens when both sides are thinking clearly and asking hard questions.
Who can you think of that focuses on dividend income from their bp shares? Share this article with them.
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This is for educational purposes only. It’s not personal investment or tax advice and we’re not recommending any specific course of action. Everyone’s situation is different, and decisions about shareholdings, diversification, and tax planning depend on individual circumstances including your income, tax position, risk tolerance, and personal objectives. You should consider seeking professional financial and tax advice before making decisions about your investments.
While we have extensive experience helping bp employees and alumni optimise their benefits, Emery Little operates independently and is not affiliated with or endorsed by the bp group, including BP Pension Trustees Limited, on behalf of the BP Pension Fund. This allows us to provide objective, independent guidance focused solely on your best interests.
