First off, thank you for taking the time on a Friday evening to share such a kind, useful and information filled response.
2nd, if you want to make the distinction that fully paying the dividend somehow doesn't include also funding the capital program planned for the next 3 years, then that's your business. But the Motley Fool author made the point that COP doesn't have the cash flow to pay capex and dividends and that led to this post questioning if COP can fully pay its dividend. Companies that cannot fully fund dividends either are betting that growth will eventually catch up and fully fund the dividend sometime in the future, otherwise they have to shrink or cut the dividend at some time in the future.
3rd, the Seeking Alpha article you reference doesn't directly address this question. They are high on COP because the dividend is high, has been increased the last 12 years and dividend payout ratio is under 50%. Dividend payout ratio's are great, but they don't address planned capital spending - and COP has stated they plan to invest $15B each year for the next 3. So the question goes unanswered, with a $15B/yr capital program, can COP fully fund its dividend payments?
I had hoped to have a discussion about facts / numbers that show Motley Fool is right or wrong about their opinion. We obviously have different expectations about this message board.
I just looked at the 2012, 9 month cash flow statement, and it is very difficult to see exactly what is happening due to the activity early in the year between Phillips 66 (PSX) and COP. They did sell $2.0 Billion worth of assets, which they have talked about all year, but also bought back $5.0 Billion worth of stock and also received a huge $7.8 Billion cash payment from PSX. Buying back stock also shrunk the share count by 9%.
The only thing that I cannot quite figure out is what happened to the balance sheet of the new COP compared to what it would have looked like as it does now on December 31, 2011. Looking at the debt retained on September 30, 2012, it appears that they may have leveraged the company more than before by buying back more stock than paying down debt.
I still have few concerns because COP has good properties and despite what many think, natural gas is a game changer and eventually the price will come back. IT is being used more and more as a transportation fuel and Canada will definitely be exporting LNG, so that will help North American prices. Considering everything, I see no real worry about COP cash flow and its ability to pay the dividend and continue to buy back stock, albeit, at a reduced rate.
the answer to your question as I see it, is that cop will fund dividend from sales if you want to say it that way as they also spend 15B from cash flow and sales to replace the assets they are selling in foreign countries to exploit the gas and oil properties they are purchasing and developing here in the USA It matters little to me as long as they are able to do both whether they have the cash flow from operations or sales of assets as long as they continue to improve their situation and improve stability