U.S. energy firm Apache Corporation (NYSE:APA - News) raised its quarterly cash dividend to 17 cents per share (68 cents per share annualized), representing an increase of approximately 13% over the previous payout. The new dividend is payable on May 22, to shareholders of record as of April 23, 2012.
Apache, which is scheduled to report fourth quarter and year-end 2011 results on February 16, has bolstered its long-term earnings and cash flow visibility on the back of the company’s strong volumes that has now grown in 30 out of the past 32 years.
We believe that the dividend hike not only highlights Apache’s commitment to create value for shareholders but also underlines the oil and gas explorer’s healthy financial condition and confidence in its business going forward.
Moreover, Apache has a long and consistent dividend paying record. The company has paid a dividend every year since 1965, for 48 straight years. As such, we believe Apache’s dividend to be safe and reliable.
Apache – which completed the purchase of Exxon Mobil Corporation's (NYSE:XOM - News) Beryl Field, together with other properties in the U.K. North Sea earlier this year – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.
We like Apache’s large geographically diverse reserve base, its balanced exposure to natural gas and crude oil, and its multi-year trends in reserve replacement and production growth.
Despite being one of the largest domestic exploration and production companies, Apache still boasts an annual output growth in excess of 10%. A pristine balance sheet helps the company to capitalize on investment opportunities and strategic acquisitions, thereby further improving growth visibility.
However, we see limited upside potential for shares, taking into consideration Apache’s sensitivity to gas/oil price volatility, its drilling results, costs, geo-political risks and project timing delays. As such, we expect Apache to perform in line with the broader market.
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