Occidental Petroleum (OXY), one of the largest U.S. producers, has seen its share price decline by 42% from its five-year high. It is no secret that the oil and gas industry is in trouble. But for income investors, energy stocks could be ripe for the picking. Collapsing share prices have resulted in some very high dividend yields across the sector. Occidental currently has a dividend yield of 5%, based on its June 9th closing share price. This makes Occidental one of 416 stocks trading on a major U.S. stock exchange with a 5%+ dividend yield. You can see the full list of established 5%+ yielding stocks by clicking here.
And, the company has increased its dividend for the past 14 years in a row. Occidental is a Dividend Achiever, a group of 264 stocks with 10+ years of consecutive dividend increases. You can see the entire list of all 264 Dividend Achievers by clicking here. This article will discuss Occidental’s business model, and why the stock could be attractive for bargain-hunting dividend investors.
Business Overview
Occidental Petroleum is an oil and gas exploration and production company. Most of its operations are on the upstream side of the business, although it does have a midstream segment and a chemicals business. Occidental’s most important resource base is the Permian Basin, which is arguably the premier oil field in the United States. It is the number one producer in the Permian, with 2.5 million acres, and over 24,000 operated wells.
Source: Bernstein 33rd Annual Strategic Decisions Conference, page 21
Occidental expects Permian average production to increase another 13%-21% in 2017. One of the benefits of being the biggest producer in the Permian Basin is scale. This allows Occidental to cut costs drastically when it needs to. For example, Occidental cut its capital spending by 49% in 2016. This helped the company generate $2.5 billion of operating cash flow in 2016. Separately, Occidental has considerable international oil and gas assets. In 2016, Occidental produced 268,000 barrels per day in Oman, Qatar, and the United Arab Emirates. Production hit a record in Oman and the UAE, and thanks to continued cost improvements, Occidental expects free cash flow in its Middle East operations will increase by $300 million this year. In Occidental’s midstream business, it operates gas plants, pipelines, power generation, and marketing. Free cash flow in Occidental’s midstream segment is expected to increase by as much as $200 million this year, from ramping up the Ingleside oil storage and export facility. Exports are a tailwind for Occidental’s midstream growth. Lastly, Occidental has a large chemicals business, which helps add stability. Profits from the chemicals segment increased 5.3% in 2016.
