Conoco fattest US dividend offers 4% income not growth

Changing Ranks

“I think they’re going to position themselves so that they’re an attractive stock for individual investors as well as institutions looking for a dividend yield,” said Brian Youngberg, an analyst at Edward Jones in St. Louis. “In this current market environment, dividends go a long way.”

The spinoff will take the energy producer out of the ranks of integrated oil companies such as Exxon and put it at the top of a new peer group of independents, which focus exclusively on exploration and production.

Anadarko, currently the largest U.S. independent oil and gas producer based on its market value of about $37 billion, has a quarterly dividend of 9 cents a share and a yield of 0.5 percent. Apache, the nation’s second-largest independent, has a 17-cent dividend per quarter and a yield of 0.7 percent.

Exxon and Chevron, the two largest U.S. oil companies that integrate exploration and refining operations, also have dividend yields in the 2% to 3% range.

Uniquely Positioned

ConocoPhillips will be uniquely positioned after the spinoff, said Youngberg, who has a buy rating on its shares and owns none. The producer appears to have the cash flow to pay the dividend as well as invest in growth and buy back some shares over time, he said.

“They’ll have some definite characteristics from an investment standpoint of an integrated company, but without the volatility that refining and the other businesses provide,” Youngberg said.

ConocoPhillips is on track to have $5 billion of share repurchases in the first half, Lance told investors today. Another possible $5 billion in repurchases will depend on asset sales, he said. Lance said the company sees about $8 billion to $10 billion in divestitures, with some possible next year.

ConocoPhillips shouldn’t have a problem funding the announced dividend in the second half of this year, based on current oil prices, Molchanov said.

Raymond James estimates that Brent crude, a global benchmark, may average $95 a barrel in 2013, Molchanov said, which would be a drop from prices of about $120 in recent days. Funding dividends without actions such as cutting capital spending would be “considerably tighter” under lower prices, he said.

Bloomberg News

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