Buying heavily discounted positions in BP…for my kids

bpAfter recently getting a hefty tax refund, I decided I had enough cash to buy my kids a starting position in BP, aka British Petroleum. Why?

  • They are paying about a 5.8% dividend.
  • They’re balance sheet of assets and earnings in dollars is about the same as when they were trading at $60+/share.
  • They have already doled out much in payments regarding the Deep Horizon oil spill from 2010.

Essentially, they are still at risk of having to pay out more damages, but the odds are shrinking as time progresses. It might take more years to wrap this up, but that hasn’t stopped them from continuing to produce. When other investors get more emotionally comfortable, the price will in all likelihood rise back to that $60/share range.

I own a small piece of BP in my IRA. The place where I wanted to apply more cash was moving pieces of that refund into my children’s trustee accounts I set up a year ago. Essentially I can buy them a block of BP stock, set it on DRIP to auto-buy more shares as the payouts come, and let it auto-grow over the years.

Does this sound suspicious given that I am not myself buying more BP? I understand your position. If it was so glorious, why don’t I buy some myself? The truth is that I’m working on another investment that simply takes time to become available. So I have to sit on that cash until the time is right. As to buying for my kids what I buy for myself, already done. VNR, BP, and CVX are stocks I own and that I have also bought for my kids. The other thing I’m looking to investing in isn’t an option for them without setting up more complicated structures. So in the meantime, I am happy to buy chunks of stock in companies that have performed well for years.

I believe BP is suffering an emotional roller coaster not tied to the their actual value. When they return to the $60s, then the equity position I have just bought for my kids will rise 50%. Awesome!

Stay tuned!

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