Please ensure Javascript is enabled for purposes of website accessibility

Oil Boom Is Fueling Dividends

By Matthew DiLallo – Feb 7, 2014 at 1:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Apache Corporation, Marathon Oil Corporation, Devon Energy Corporation and Anadarko Petroleum Corporation all grew dividend payouts to investors in 2013 thanks to booming oil production growth in America.

Photo credit: Apache Corporation

Oil production isn't the only thing booming in America. Dividends paid to energy investors are booming too. Just the other day Apache Corporation (APA -2.13%) announced it was boosting its payout by 25%. That's on top of previous pay increases to investors of 18% in 2013 and 13% in 2012.

CEO Steven Farris said in a statement that, "Apache's portfolio has been rebalanced to emphasize predictable and profitable growth, particularly from our oil- and liquids-rich onshore North American assets." Because of this he pointed out that the company's board, "significantly increased the dividend again this year because it has confidence in Apache's ability to execute our future growth plans."

Apache investors aren't the only ones enjoying oil fueled dividend increases. Last year Marathon Oil Corporation (MRO -2.50%) authorized a 12% increase in its dividend to investors. Devon Energy Corporation (DVN -4.07%) boosted its dividend by 10% over the previous year. Meanwhile, Anadarko Petroleum Corporation (APC) investors received the greatest boost. The company provided them with a 100% dividend increase last year. Even better, all of these dividends are likely to keep heading higher in the future.

  

Drilling for dividends? Photo credit: Marathon Oil Corporation  

Booming production growth = booming dividend growth
Marathon Oil sees its production in the U.S. growing by 30% next year, with an average annual growth rate of 25% through 2017. That's one of the company's fastest growing regions as overall production growth is only expected to average 5%-7% over that same time frame. Because of this, like Apache it's shedding lower growth international assets in favor of investing in the U.S. By rebalancing its portfolio the company is able to enjoy more predictable and profitable growth, therefore it likely will pay its investors higher dividend payments in the future.

Devon Energy left most of its international markets years ago. Now the company's main focus is to grow its oil production in the U.S. and in Canada's oil sands. Overall, Devon Energy is growing its U.S. oil production at about a 30% rate. That's fueling substantial cash flow for the company as its operating cash flow increased 18% last quarter. The company's cash inflows already exceed its capital demands by more than $200 million, suggesting more dividend increases are on the way.

Then of course there's Anadarko Petroleum. When it doubled its dividend last August the company's CFO Bob Gwin said in a statement that, "This substantial increase in our cash dividend reflects the confidence we have in our portfolio and its capability to deliver capital-efficient growth within cash flow." He also noted that the company continues, "to focus on generating strong returns for, and returning cash to, our shareholders, and this is a very positive step in that direction."

Anadarko's portfolio is being fueled by production growth at its Wattenberg field in Colorado as well as the Eagle Ford Shale in Texas. Last year the company grew its average production in Wattenberg from 22,000 barrels of oil equivalent per day, or BOE/d to 56,000 BOE/d. That growth really helped to fuel the company's ability to grow its dividend. Moreover, the company grew its cash on hand from $1.2 billion in 2012 to $3.7 billion to end the year. It did that through strategic asset sales as well as delivering $240 million in adjusted free cash flow. That cash pile, combined with its continued ability to generate cash means the company could push its dividend higher in the future, once it gets past its current liability problems.

Investor takeaway
Dividend investors should take note that the energy sector is looking like a great place to go for growing dividends. With no end in sight to the energy boom, investors should continue to rack up a lot of income from future dividend growth.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Apa Stock Quote
Apa
APA
$41.86 (-2.13%) $0.91
Devon Energy Stock Quote
Devon Energy
DVN
$59.62 (-4.07%) $-2.53
Anadarko Petroleum Stock Quote
Anadarko Petroleum
APC
Marathon Oil Stock Quote
Marathon Oil
MRO
$26.17 (-2.50%) $0.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.