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I’m keen to buy great value BP shares in June but Aviva’s 6.96% yield looks pretty tempting too

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Now looks like a terrific time to buy BP (LSE: BP) shares but there’s one thing stopping me. A number of other FTSE 100 stocks are super-tempting too, notably insurer Aviva (LSE: AV). I don’t have the cash to buy them both. Investing is about making choices. So what do I do?

The BP share price can be volatile. As with any commodity stock, it tends to rise and fall in cycles. So when Russia invaded Ukraine and energy prices rocketed, its shares followed suit.

I resisted the temptation to chase it upwards. I prefer to buy shares before they take off, rather than afterwards. It’s not always easy though. It involves defying the herd, which is a struggle even for the most contrarian investor.

Top dividend stock

BP shares have dropped 4.17% over the last month. They’re still up over 12 months, but only by 7.69%. I don’t think I’m buying at the top of the market.

They could slide further, but that’s a risk I have to take. Buying at the exact bottom of the market involves a huge slice of luck. I’m rarely that lucky.

But with the shares trading at 7.1 times earnings, why wait? There seems to be a real opportunity today. Brent crude has fallen to a three-month low of $81 a barrel, down from more than $120 two years ago. That looks like a decent trigger.

The US, Brazil and Iran have been pumping out more oil, adding to supply. Interest rate hikes have been delayed, slowing the global economy and hitting demand. Red Sea tensions have added to freight costs, but the impact has been less than originally feared. Will these trends reverse? I have no idea. At some point, I just have to take the plunge. 

BP currently yields a solid 4.6%, covered 3.1 times by earnings. That’s forecast to hit 4.9% in 2024, with cover of 2.7.

FTSE 100 income hero

Now looks like a good time to buy but I could say the same about Aviva. In contrast to BP, its shares have been on a good run lately, up 21.74% in the last year. 

CEO Amanda Blanc is reaping the rewards from her efforts to build a leaner, meaner, more cash-generative Aviva. Full-year 2023 operating profits jumped 9% to £1.47bn, beating forecasts.

Blanc also launched a £300m share buyback and increased the dividend by 8%. Aviva is forecast to yield a walloping 7.2% next year, smashing BP. However, dividend cover is a lot thinner, at just 1.3 times earnings.

Also, Aviva’s £300m buyback pales compared to BP’s first-quarter $1.75bn. That’s on top 2023’s insane $7.91bn buyback. After their recent strong run, Aviva shares are pricier than BP’s at 12.7 times earnings.

The share price could climb higher when interest rates finally start to fall, which should boost its asset management operations. Although BP would also benefit.

If money wasn’t an issue, I’d buy both with the aim of holding them for years and with luck, decades. But investing is about choices, and I’ve just made mine. I already have exposure to the insurance sector via Legal & General Group, and I don’t hold any energy stocks. I’ll aim to buy BP in June. Later, I’ll return for Aviva.

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