Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Should Occidental Petroleum Investors Expect a Higher Dividend Yield?

What are the prerequisites for the growth of a dividend yield? A strong business, growing revenue, and increasing cash flows ... or how about a reduction in the number of outstanding shares? Share buybacks will also lead to a growth in dividend yield even if the dividend remains the same on the cash basis. And this is what exactly Occidental Petroleum (NYSE: OXY  )  is doing.

Don't expect big growth from Occidental Petroleum
Occidental Petroleum is not in a phase of rapid growth, which is typical for a company of its size. In fact, Occidental Petroleum's first-quarter production dropped from 763,000 barrels of oil equivalent per day (boe/d) in 2013 to 745,000 boe/d in 2014. But the company's revenue increased, helped by higher oil prices. In the second quarter, Occidental Petroleum expects to grow its oil production between 7,000 boe/d and 9,000 boe/d.

Similar trends could be seen while looking at Suncor Energy (NYSE: SU  ) . Suncor Energy's first-quarter production dropped from 596,000 boe/d in 2013 to 545,300 boe/d in 2014. Just like in Occidental Petroleum's case, assets divestments played a key role in Suncor Energy's production drop. Going forward, Suncor Energy expects to produce 525,000-570,000 boe/d in 2014.

Achievement of the high end of this guidance will depend on the performance of the company's oil sands segment, which is expected to grow 15% this year. But not everything is that rosy for some oil sands projects. For example, Total (NYSE: TOT  ) has recently suspended work at Joslyn oil sands mine in Alberta, as high costs put project economics under question. Total owns a 38.25% stake in this project, while Suncor Energy holds a 36.75% stake and Occidental Petroleum owns a 15% stake. Importantly, the halt of this project does not influence Occidental Petroleum production numbers in the near term.

Divestments pave the way for share buyback
Occidental Petroleum was active on the share buyback front in the first quarter, spending $945 million on this purpose. In comparison, the company spent $515 million on dividend payments during the same time period. The good news is that Occidental Petroleum will continue repurchasing its shares and has the means to do so. The company plans to separate its Californian assets into a company called California Resources Corporation in the fourth quarter of 2014. Through dividends that this new company will pay to Occidental Petroleum, the latter expects to buy back 40 million-50 million of its outstanding shares.

In addition, Occidental Petroleum continues to monetize its remaining interest in the Plains All American Pipeline (NYSE: PAA  ) . What's more, the company has 26.5 million shares left for repurchase in the current authorized buyback program. Together, these repurchases could reduce current share count by up to 100 million shares.

Bottom line
Occidental Petroleum's dividend yield will likely increase even if the company does not lift the amount of cash distributed to shareholders. During the first quarter earnings call, the company stated that it had no need to do any sort of large-scale, major acquisitions. This highlights the company's reluctance to spend more than necessary and its focus on returning cash to shareholders.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2990620, ~/Articles/ArticleHandler.aspx, 9/1/2015 6:45:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Vladimir Zernov

Vladimir Zernov believes that fundamental analysis works best with energy and materials stocks and covers them on Motley Fool.

Today's Market

updated Moments ago Sponsored by:
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASD 4,636.11 -140.40 -2.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 4:03 PM
OXY $70.01 Down -3.00 -4.11%
Occidental Petrole… CAPS Rating: ****
PAA $34.82 Down -1.24 -3.44%
Plains All America… CAPS Rating: *****
SU $27.31 Down -0.93 -3.29%
Suncor Energy, Inc… CAPS Rating: ****
TOT $45.38 Down -1.02 -2.20%
Total (ADR) CAPS Rating: *****