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ConocoPhillips (COP) Rewards Investors With Dividend Hike

Zacks Equity Research
·4 min read

ConocoPhillips COP recently announced a hike in quarterly dividend, as a shareholder-friendly measure. While many leading energy firms are either considering or have opted for a cut in dividend payouts amid the coronavirus pandemic, the company’s decision to increase dividend is expected to send positive signals to investors.

The new dividend of 43 cents per share (or $1.72 annually) reflects a 2.4% increase from the prior payout of 42 cents. The dividend is likely to be paid on Dec 1, to stockholders of record as of Oct 19. The dividend yield, based on the new payout and the last closing market price, is approximately 4.5%.

This new move to boost shareholder value came following the stock buyback decision announced during September-end. ConocoPhillips plans to resume share repurchase of $1 billion in the fourth quarter, following a five-month hiatus. It will use the cash available on the balance sheet to fund the stock buybacks. Earlier, it slowed down the pace of the 2020 stock buy-back program due to market uncertainties.

Moreover, the company provided some preliminary operational and financial updates for the September quarter of 2020. ConocoPhillips’ third-quarter overall production is estimated in the range of 1,050-1,070 thousand barrels of oil equivalent per day (MBoe/d), excluding Libya. The figure indicates a sequential rise from 981 MBoe/d. Also, it expects third-quarter average realized prices in the range of $30-$32 per Boe, indicating an improvement from the second-quarter level of $23.09.

What’s Driving the Dividend Policy?

The bulk of acres that ConocoPhillips holds in the three big unconventional plays — namely Eagle Ford shale, Delaware basin and Bakken shale — are rich in oil. The company has long-term plans to spend billions of dollars on the shale plays and operate around 20 rigs across four major fields. This is expected to ramp up production from the regions from more than 400,000 barrels a day to 900,000 barrels or more by the end of the next decade, in turn boosting cash flows. The remaining significant opportunities for ConocoPhillips in the Eagle Ford shale, wherein it owns about 3,800 undrilled locations, could lend the company an access to huge oil equivalent potential reserves.

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As of Jun 30, 2020, ConocoPhillips had $2,907 million in total cash and cash equivalents, as well as total long-term debt of nearly $14,852 million. Its massive liquidity position will enable it to pay off short-term debt of only $146 million. Also, it has a debt to capitalization of 32%, lower than the industry average of 40.3%. As such, ConocoPhillips’ balance sheet is significantly less leveraged than the industry it belongs to. Notably, the upstream firm has relied on its strong balance sheet to hike its dividend payments.

Price Performance

The company’s shares have gained 2.4% in the past six months against 4.6% fall of the industry it belongs to.

Zacks Rank & Stocks to Consider

ConocoPhillips currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include DCP Midstream, LP DCP, Apache Corporation APA and Matador Resources Company MTDR. While DCP Midstream has a Zacks Rank #1 (Strong Buy), Apache and Matador Resources hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DCP Midstream’s bottom line for 2021 is expected to skyrocket 156.4% year over year.

Apache’s bottom line for 2021 is expected to surge 84.3% year over year.

Matador Resources’ sales for 2021 are expected to rise 12.2% year over year.

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Apache Corporation (APA) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
Matador Resources Company (MTDR) : Free Stock Analysis Report
 
DCP Midstream Partners, LP (DCP) : Free Stock Analysis Report
 
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Zacks Investment Research