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ConocoPhillips Message Board

  • sollid_companiess_only sollid_companiess_only Jun 14, 2014 8:18 AM Flag

    Seeking Alpha Article: COP May Not Raise Dividends for a While

    •By holding the dividend at $2.64 after spinning off Phillips 66, Conoco raised its payout ratio from 30% of net profits to 44% of net profits.
    •Most likely, Conoco will try and lower this payout ratio to the 25-30% range over the long term to allow for the capital projects necessary to fund growth.
    •The implication is that, for the next several years, earnings per share may be increasing faster than dividends as the company recalibrates to a more appropriate long-term payout ratio.

    After spinning off Phillips 66 (PSX) in 2012, Conoco (COP) management made an important decision: they chose to keep their dividend at $2.64 per share. This was significant because the removal of Phillips 66 from the Conoco corporate umbrella reduced Conoco's earnings per share from $8.76 in 2011 to $5.91 at the time of the spinoff. In other words, by keeping the payout steady without Phillips 66 on the balance sheet, Conoco effectively raised its dividend payout ratio from 30% in 2011 to 44% after the spinoff.

    Now that Conoco is an exploration and production company, there can be an inclination to get the payout ratio more in line with the 25-30% range rather than the nearly 40-50% range that the company has been in since divesting Phillips 66.

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    • The Seeking Alpha article is (most likely) wrong.
      They raised the dividend at the early-July board meeting last year, and management has been adamant at every presentation that their intention is to create a track record of raising the dividend every year.

      Moreover, since PSX paid dividends right off the bat, shareholders effectively got a dividend increase that year, even though the payout from COP was not increased.

      Expect a modest dividend increase in three weeks that will signal management's confidence in the company's outlook, which for a long time was misunderestimated.

      Currently, the yield is exactly the same as the yield for CVX, after CVX raised its quarterly dividend by 7% recently. I would expect only a 5% dividend increase here this year, though the pace could accelerate in a few years as production grows from new projects coming online.


    • I expect there will be a dividend increase next month….. as there was last year in July.

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