ConocoPhillips (COP) increases dividend 6% after last year’s dividend cut.

ConocoPhillips’ (NYSE:COP) dividend was increased by a solid 6%. Its overall yield is 2.10% based upon the increase. The firm started paying a dividend in 1993.

ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. Its portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia, and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects. The company was founded in 1917 and is headquartered in Houston, Texas.

ConocoPhillips currently ranks 8th in yield within the large cap basic materials, major integrated oil & gas category. The quarterly dividend for the March payment will be $0.265 versus the prior year rate of $0.25 per share.

The dividend will be paid at the new higher rate on March 1, 2017, to shareholders of record at close of business on February 14, 2017. ConocoPhillips is currently priced at $50.43. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
2/14/2017 0.265
10/13/2016 0.25
7/21/2016 0.25
5/18/2016 0.25
2/11/2016 0.25
10/15/2015 0.74
7/23/2015 0.74
5/20/2015 0.73
2/12/2015 0.73
10/9/2014 0.73
7/17/2014 0.73
5/21/2014 0.69
2/13/2014 0.69
10/10/2013 0.69
7/18/2013 0.69
5/22/2013 0.66
2/14/2013 0.66
10/11/2012 0.66
7/19/2012 0.66
5/17/2012 0.66
2/16/2012 0.503
10/13/2011 0.503
7/21/2011 0.503
5/19/2011 0.503
2/17/2011 0.503
10/27/2010 0.419
7/29/2010 0.419
5/20/2010 0.419
2/18/2010 0.381

Quantitative Analysis:

We examine ConocoPhillips upon our five key criteria, which include; 

Category Value Score
Dividend Yield 2.10% 274
Dividend Growth (3 to 7 year avg) -11% 412
Forward P/E 26.23 304
S&P Financial Rating A- 120
Beta  1.35 225
Total Score   1,335

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2017 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
2.10% -18% -3.4% 25.55 1.90 0.30 2.60 1.90% 7.76%

Positives;

  • ConocoPhillips maintains an investment grade credit rating.
  • ConocoPhillips’ dividend yield is above that of the S&P 500 Index.

Negative;

  • ConocoPhillips’ current dividend yield (2.10%) is toward the bottom of its ten-year average.
  • ConocoPhillips maintains a beta of 1.35, higher than the average company.
  • ConocoPhillips is trading above its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

ConocoPhillips issued its earnings data on February 2nd. ConocoPhillips maintained a loss of 26 cents per share for Q4 of 2016, which was better than the expected loss of 42 cents. Overall revenue climbed by 7 percent to $7.25 billion. This was slightly below consensus estimates.  The critical element was the total realized price per barrel, which came in at $32.93. This was over 15% higher than the year ago period.   ConocoPhillips indicated that production in the first quarter of 2017 would be about 1.6 million barrels per day.

The energy giant is also doing a great job on cutting costs. ConocoPhillips doled out nearly $350 million on exploration in the fourth quarter of 2016, versus $2 billion in Q4 of 2016. Overall costs for the energy firm fell by almost 40%, to $7.26 billion.ConocoPhilips the firm had also cut its dividend last year to save costs and reduce the breakeven point. Now the firm has one of the lowest breakeven points in the industry, at near $50 per barrel. Considering that the breakeven for the firm was $80 a years ago, this is quite an accomplishment.

In 2017, ConocoPhillips’ management team indicated it will put a priority on positive cash flow generation. Production for their key properties should be up about 2% for fiscal 2017. The firm in Q4 announced 2016 expected reserves at just under 6.5 billion barrel oil equivalents.  Reserves are down just over 20% from last year. But most of this drop is due to lower oil price costs rather than production.

ConocoPhillips stands out within the large energy companies. After spinning off its refinery business a few years ago, it is now more focused upon exploration.  It is now a more pure play explorer versus a diversified firm like the majors Chevron and Exxon. As for as independent oil exploration, it is one of the largest in the U.S.  Its 1.6 million barrels of oil equivalent per day make it a giant among its competition among pure plays. The company projects to increase rig count in the U.S. 11 next year, up from 8.  Thus rigs in the Eagleford will jump to 5 while the Bakken will have 4 and the Permian 2. The company is continuing to emphasize its short-cycle unconventional assets and reduce large projects that are not near completion Large positions in the Eagle Ford, Permian, and Bakken offer low-cost liquids growth while offering lower risk and higher returns than international operations.Capital expenditures for exploration should be $5 billion for 2017, about the same as 2016’s spending. The firm also plans additional asset sales in the neighborhoods of $6 billion that will generate additional cash to assist with the capital expenditure budget while ensuring the dividend is secure. The firm has overall proven reserves of nearly 10 billion as well as  boe (more than half liquids), 65% of which is developed.

The firm also has assets outside the U.S. that offer additional production. This includes assets in the oil sands assets in Canada, Drill Site 2s in Alaska, Alder in Europe, and LNG in Australia. The Australia Pacific LNG, or APLNG, facility is a big asset for COP. ConocoPhillips shares ownership with Australia’s Origin Energy and China’s Sinopec. It owns just over one-third of the project.  The project made its first shipment of LNG in January and expectations are for a major ramp-up in 2017. More critically, after spending nearly $8 billion on the project, ConocoPhillips can finally start to earn free cash flow off its hefty investment. It also has production in Libya, which was recently resumed and also Malikai in Malaysia. Although these assets don’t have the same favorable economics as U.S. shale assets, they offer solid cash flow.

Although we like the merits of ConocoPhillips, the firm’s recent dividend cut and elevated price/sales ratio ranks the firm outside our Top 100 Dividend Stocks list.  We prefer Exxon, Schlumberger, Hess, and Total SA within the energy sector. 

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ConocoPhillips Dividend Yield Chart (Click to enlarge)

cop2

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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