Occidental Petroleum Corporation is engaged in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. The company operates in three segments: Oil and Gas; Chemical; and Midstream, Marketing and Other. This dividend achiever has paid dividends since 1975 and has managed to increase them for 12 years in a row.
The company’s latest dividend increase was announced in February 2014 when the Board of Directors approved a 12.50% increase in the quarterly dividend to 72 cents /share. The company’s peer group includes Exxon Mobil (XOM), Imperial Oil (IMO) and Hess (HES).
Over the past decade this dividend growth stock has delivered an annualized total return of 18.10% to its shareholders. This was due to the fact that the stock was really cheap a decade ago, coupled with the fact that earnings and dividends per share increased rapidly.
The company has managed to deliver a 13.50% average increase in annual EPS over the past decade. A large portion of the earnings growth occurred in 2004. The rest of the decade has been characterized by fluctuating earnings. Occidental Petroleum is expected to earn $7.15 per share in 2014 and $7.26 per share in 2015. In comparison, the company earned $7.34/share in 2013.
Occidental Petroleum has a record of consistent share repurchases. Between 2006 and 2014, the number of shares declined from 860 million to 801 million.
In early 2014, the company announced a few strategic initiatives, which will be catalysts for investor returns in the next five years or so. First, the company is selling off assets, and using the proceeds to buy back stock.
Second, the company is planning to spinoff its assets in California as a standalone company. Spinoffs have historically done really well for investors on average, because management is able to better focus on the underlying business after separation.
Third, the company is trying to focus on its remaining US assets and squeeze out mid to high single digit production growth. If oil and gas prices do not fall significantly from present levels, this could translate into much higher earnings per share.
Last, but not least, the company has put dividend growth as its second most important priority. The first priority is obviously maintaining production. Next priorities include growth, share repurchases and acquisitions.
The annual dividend payment has increased by 17.30% per year over the past decade, which is higher than the growth in EPS. This was mostly possible due to the expansion in the dividend payout ratio over the past decade.
A 17% growth in distributions translates into the dividend payment doubling every four years on average. If we check the dividend history, going as far back as 2005, we could see that Occidental Petroleum has actually managed to double dividends every four and a half years on average. Prior to 2002 however, the dividend was unchanged for 12 years in a row at 12.50 cents/quarter, after a very steep dividend cut in early 1991. Between 1981 and 1990, the quarterly dividend was unchanged at 31.25 cents/share. All historical data has been adjusted for stock splits. The company had also suspended dividends in 1972 – 1974. Based on the spotty dividend growth history, I am not so sure whether Occidental Petroleum has ingrained in it a culture of consistent dividend increases. If not, the past decade of consistent increases could be mostly a byproduct of the rising oil and gas prices, rather than a shift in the dividend culture.
Over the past decade, the dividend payout ratio decreased from 93% in 2004 to 27% in 2006. Since then, it has been increasing gradually to 52.50% by 2013. Based on forward earnings however, the dividend payout will decrease to 40%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The return on equity has been on a steep decline over the past decade, which to me is a warning sign. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Currently, the stock is attractively valued, as it trades at a forward P/E of 13.40 and a current yield of 3%. I hesitate on initiating a position in Occidental Petroleum, because I already have ownership in ConocoPhillips, Exxon Mobil, Chevron, British Petroleum and Royal Dutch Shell. That being said, the company could be a good investment for those who like to follow spin-offs, and possibly other investing strategies.
Full Disclosure: Long XOM, COP, CVX, BP, RDS/B
- Why Warren Buffett purchased Exxon Mobil stock?
- How to Generate Energy Dividends Despite the Peak Oil Non Sense
- Price is what you pay, value is what you get
- ConocoPhillips (COP) Dividend Stock Analysis 2014
- Companies I am Considering for my Roth IRA
The goal of every dividend investor is to generate dividend income that is larger than their annual expenses. This coveted goal is called th...
Dividend growth stocks are the gift that keeps on giving . I like the fact that most of the work in selecting good dividend growth stocks is...
I have been a dividend growth investor for over 7-8 years now. The reason why I have somewhere between 85% - 90% of my networth in dividend ...
I have received quite a few emails recently, asking me how I manage my dividend portfolio . In general, I focus on several things that I b...
I love it when the stock market goes on sale, like it has been so far in the past two - three weeks. For aspiring dividend growth investors,...
One of my favorite quotes from Warren Buffett deals with an issue that many dividend investors face from time to time. The quote is” If you...
How do you define success? To me, success is the freedom to do my own thing, and the ability to reach my goals. Given the fact that I am a f...
One of the biggest sins in investing, is investing money without a clear plan or strategy to accomplish specific goals . This investing sin...
I am a fan of diversification as a tool to reduce risk. I diversify by buying at least 30 – 40 securities, representative of as many sectors...
Before I begin my message, I wanted to wish all my readers a Happy 4th of July. And I wanted to thank all of those military members for keep...