Big oil stocks may soon gush big payouts for shareholders, according to Barron’s. It reports that half a dozen oil giants including Exxon Mobil Corp. (XOM), ConocoPhillips (COP) and Marathon Petroleum Corp. (MPC) are set to boost their dividends this year as oil stabilizes around $50 a barrel.
While crude prices would need to double to get back to the lofty levels of a few years ago, analysts tell Barron’s that the macro economic outlook for growth and the outlook for the industry have stabilized after some steep declines in crude. Those declines forced some industry firms to cut or suspend dividend payouts. (For more, see also:Dividends vs. Free Cash Flow.)
Howard Silverblatt, S&P Dow Jones Indices senior index analyst told Barron’s the dividend increases this year are a start but that more hikes would depend on market prices. Some companies have also cut their budgets for explorations to save cash. (For more, see also: Don’t Take Dividends For Granted.)
Higher dividends may attract buyers; the group has lost more than 10% so far this year, underperforming the broader S&P 500.
Exxon Mobil, one of the most-widely held stocks, is forecast to boost its payout by nearly 3% to $3.06/share, which would be a 3.8% yield per Barron’s. It cites the company’s second-quarter earnings call, where an XOM executive said, “cash flow from operations and asset sales more than covered dividends and net investments, with an excess of nearly $800 million.”
That’s a sharp contrast to recent years when some energy companies borrowed money to sustain or marginally increase their dividends.
Energy exploration company ConocoPhillips just reported its fourth-straight quarter of operating cash flow exceeding capital spending and dividend payments.
The company’s head of drilling and projects, Alan Hirshberg, is quoted by Barron’s as telling analysts last month that ConocoPhillips is prepared to have free cash flow covering capital spending and its dividend with crude in the $45-$50/barrel range and that the firm could “thrive in that environment over an indefinite period of time.”
Analysts project the company will boost its dividend by 7%.
Of course if crude slides below those levels, then many of these firms will have a difficult time supporting their dividends, much less increasing them.
Gas pipeline owner ONEOK Inc. (OKE) may not be a household name, but Credit Suisse Analyst Bhavesh Lodaya told Barron’s to look for a payout gusher. He forecasts the company will raise the dividend by 8% to 12% annually by 2021, as long as crude prices are stable and production remains active in areas served by its pipelines.
Lodaya also told the publication he is bullish on two companies in the natural gas area, Williams Cos. (WMB) and Kinder Morgan Inc. (KMI). Both cut their dividends in recent years as energy prices slid but the analyst sees their payouts stable this year and then Williams raising its dividend annually by 15% or more next year. The reason—its exposure to the Marcellus Shale. Kinder Morgan recently said it’s boosting its payout by 60%.
And improving cash flow has funneled into other areas including transporting, refining and storing fuels. That has improved the balance sheet at Philips 66 (PSX). It reported second-quarter operating cash flow of $1.9 billion, and Barron’s reports that’s enough to cover nearly $460 million of capital outlays and $741 million of capital returns with about half through dividends. According to Barron’s, analysts see an 11% bump in its dividend above last year’s $2.45.