ConocoPhillips (COP) is an American multinational energy corporation with headquarters in Houston. Created in 2002 through a merger of Conoco Inc and Phillips Petrolium Company, COP became the 5th largest integrated oil company in the world. In 2012, COP spun off its downstream assets to Phillips 66 (PSX), with the intent of maximizing shareholder value.
COP has a track record of 12 consecutive years of dividend increases. It pays quarterly dividends of $0.66 per share in the months of February, May, July, and October. At the current price of $57.44, COP's dividend yield is 4.6%.
Over the past 10 years, COP has outperformed the S&P500 handily, returning about 130% compared to about 90% for the S&P500. The EPS growth rate over this time period is 6%, while the 10-year dividend growth rate is 13.9%.
Fair value estimates for COP vary from $52.70 (S&P Capital IQ) to $59.00 (MorningStar) to $70.66 (Graham Number method). The current price of $57.44 is discounted by 2.72% to the median of these estimates ($59.00). I require a 5% discount to fair value, which means COP would need to drop to $56.05 to earn a star in this section.
COP passes the following of my selection criteria:
- Sum of dividend yield (4.60%) and 5-yr dividend CAGR (13.08%) is 17.68% (Chowder Dividend Rule)
- EPS% Payout ratio is 44.67% (below 65%)
- Debt to Equity ratio is 45% (below 50%)
- 7-year weighted average dividend growth rate is 14.42% (at least 7%)
- Forward P/E ratio is 9.64 and the trailing twelve month (TTM) P/E ratio is 9.72 (below 16%)
- 5-yr total payback percentage is 23.77% (at least 16%)
Other ratings for COP
| S&P Capital IQ's Stock Report | (*****)Buy |
| MorningStar Rating | (*****) |
| The Motley Fool's CAPS Rating | (*****) |
Final Remarks
COP pays a generous dividend. If I purchase 45 shares at the current price of $57.44, those shares would provide annual dividend income of $118.80 to DivGro. Also, with its plan to boost both production and margins by 3%-5%, COP should deliver great results over the next few years.
One of the biggest risks for COP is that they operate in somewhat unstable regions of the world. Countries like Libya, Algeria, and Nigeria have challenging political environments. Also, oil and gas are finite resources, so COP would need to find new sources of oil in gas in order to replenish their reserves.
I like COP not only for its dividend, but also because I believe it will deliver many more years of dividend growth and capital appreciation.
Full Disclosure: As of this writing, I don't own any COP shares, but I'm considering buying 45 shares.
Hi Ferdie!
ReplyDeleteI need to see an actual dividend increase from COP before I get excited here. I originally purchased COP shares June 2011 and again May 2012. I have been a shareholder for close to 2 years and have yet to see an actual increase in the dividend. Last year the spinoff of PSX did increase my income (I wish I never sold my PSX stake), but an actual dividend boost has eluded me. Management stated they plan to do modest div increases, but I'm still waiting. I plan to hold (not buy/sell) for now. Show me the money!
Cheers!
I understand your point of view and that you'd like to see the next dividend boost before investing more. For me, I'm still building my portfolio, so I don't have the history.
DeleteIf you could challenge COP's management about the lack of an increase, they'd probably point out that PSX now yields 2.16% and that the dual investment puts stakeholders ahead of where they would have been pre-spinoff. Of course, that's no use to you, since you sold your PSX stake...
I see COP is trading down a little today, and I'm almost ready to pull the trigger. I'd love to get in around $56.