Wednesday, October 8, 2008

Repsol YPF (REP) Dividend Stock Analysis

Repsol YPF, S.A., together with its subsidiaries, operates as an integrated oil and gas company. It engages in the exploration, development, and production of crude oil and natural gas; transportation of petroleum products, liquid petroleum gas (LPG), and natural gas; petroleum refining; petrochemical production; and marketing of petroleum products, petroleum derivatives, petrochemicals, LPG, and natural gas. The company also involves in the electricity generation business. It sells gasoline under Repsol, Campsa, and Petronor brand names.

REP is an international dividend achiever. It has been increasing its dividends for the past five consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 7.70 % to its shareholders. The stock has lost about 16% of its value so far in 2008.

At the same time company has managed to deliver a 14.30% average annual increase in its earnings per share since 1999.

The return on equity has generally increased from 14% in 1998 to 20% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 8.20% annually, which is much lower than the growth in earnings per share. An 8% growth in dividends translates into the dividend payment doubling almost every nine years.

If we invested $100,000 in REP on December 31, 1998 we would have been able to purchase 5671 shares (Adjusted for a 3:1 Stock Split in April 1999). In January 1999 your semi-annual dividend income would have been $1270. If you kept reinvesting the dividends though instead of spending them, your semi-annual dividend income would have risen to $5613 by July 2008. For a period of 10 years, your semi-annual dividend income would have increased by 252%. If you reinvested it though, your semi-annual dividend income would have increased by 342%.
The dividend payout has fluctuated between 10% and 45% over out study period. I consider a lower payout as a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

REP does look attractively valued with its low price/earnings multiple of 7, low dividend payout ratio, as well as attractive yield at 3.80%. The main issue that I have with this stock as a dividend growth investor is that the dividend payments tend to fluctuate a lot. In addition to that I already have exposure to this sector so I will give it a pass.

Disclosure: I do not own shares of REP
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