Energy

Does a 38% Dividend Hike by ConocoPhillips Match Reality in Oil & Gas Ahead?

Jon C. Ogg

Published: October 7, 2019 3:17 pm

Last Updated: January 30, 2020 2:57 pm

It might seem odd with the lower oil prices and with energy stocks in the tank that one of the industry giants might really want to commit to raising its dividend by any large amount right now. After all, a company’s board of directors is certain to know that if a company raises a dividend one year it won’t just be looked at as a giveback if they have to lower that payment in a year.

Despite the price of oil being between $50 and $55 per barrel, ConocoPhillips (NYSE: COP) announced that it is increasing its dividend. This is not a normal dividend hike either. It was by a sharp 38%, and it’s offering guidance on share buybacks ahead.

Conoco has raised its quarterly payout to $0.42 per common share from a prior $0.305 per share. The new annualized payout of $1.68 per share is against last year’s earnings of $4.54 per share, and Refinitiv’s consensus earnings estimates are $3.99 per share for 2019 and $4.18 per share for 2020.

Conoco also included a forecast that it expects to repurchase $3 billion of its shares in 2020. According to the company’s release, the annualized increase in the dividend payments comes to about $500 million. The company also has about $14.8 billion in long-term debt for which interest has to be paid each.

The dividend will be payable on December 2, 2019, to holders of record at the close of business on October 17, 2019.

This now sets the stage for an outlook that is at least supportive of earnings ahead of next month’s Analyst & Investor meeting, in which it will offer a 10-year outlook on the industry and for the company. Ryan Lance, Conoco’s board chair and chief executive officer, said of the hike and outlook:

This increase in our ordinary dividend reflects the significant transformation our company has undergone over the past few years. Since announcing our returns-focused value proposition in 2016, we have improved our underlying performance drivers and lowered our sustaining price for the business. Given these enhancements, we are confident we can fund a higher, growing cash dividend, while maintaining a substantial, consistent buyback program. Since 2016 we have returned about 45 percent of cash from operations to shareholders and we remain committed to delivering peer-leading return of capital annually.

ConocoPhillips currently has a $60 billion market cap. The company’s press release also indicated that the investor meeting’s 10-year outlook will include a capital investment plan, a detailed portfolio review, a financial framework targeting free cash flows and a commitment to both returns on capital employed and returns of capital to shareholders.

Conoco screened out as being down 14% so far in 2019. Here is how the new dividend of about 3.05% and the year-to-date performance compare to its top peers:

• Exxon Mobil, 5.05% yield and a $295 billion market cap; up 1%
• Chevron, 4.2% yield and a $215 billion market cap; up over 4%
• Occidental Petroleum, 7.3% yield and close to a $40 billion market cap; down 29%

Shares of Conoco were last seen up 2.6% at $54.89, and its dividend yield will jump from about 2.3% to about 3.05% after that hike is implemented.

Conoco has a 52-week trading range of $50.13 to $79.96, and Refinitiv lists its consensus target price as $73.95.

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