Friday, January 9, 2015

2015 First Dividend Machine OXY

I have two stock ideas for your consideration.   Technically both qualify as Dividend Machines but it is stretching the use of my Dividend Criteria on one stock to make it comply, so I will name only one of these two as a Dividend Machine but I will take a position in both.

Both of these stocks have low debt to equity ratios.   They are in a most unloved sector, energy.   One is a diversified company engaging in three segments (1) exploration and development of oil and gas, (2) chemicals and (3) midstream and marketing services.   The other drills wells for others.

In this crazy volatile market, I want stocks that are safe and I use D/E ratio as a measure of safety.  When I refer to safe, I want to be assured that the company is not going to fail.   This is in contrast to the concept of safe as interpreted by stock price.   Safe to some is that the stock price will not go down.    Both of these companies have low D/E ratios.  Both have volatile price histories as have all stocks in the energy sector.

Another aspect of safety for the income investor, is the prospect that the stock will continue to pay me ever increasing income.  It is highly likely that these stocks will continue to pay if their earnings per share are substantially greater than their dividends paid out.  Both stocks have good earnings history in relation to dividends paid out. 

I also concentrate on dividend yield.   Both of these stocks have greater than the minimum requirement of 3.5% dividend yield.     Each has five year history of growing the dividend but their dividend growth rates are quite dissimilar.      And it is this dividend history that separates these two stocks.  Let’s look at their Dividend Machine Fundamentals.

Helmerich & Payne, symbol HP

Helmerich & Payne is the driller.   Trading today at about $60.045, HP is off the 52 week high of $118.95 and just above the 52 week low of $58.4001 (source Nasdaq.)  D/E ratio is .01 which is almost nothing (source MSN Money.)  Earnings far exceed dividends over the past four quarters:  EPS = $6.46 and dividends = $2.75.   The most recent quarterly dividend is $.6875 for an annual yield of 4.7%.   Five years ago the dividend was $.05.   Only recently has HP been dedicated to paying out such a high dividend.    Although technically the dividend growth rate over 5 year is 255% per year, I am really looking for a more steady growth rate rather than just a recent big increase.   This is why HP will not be my first 2015 Dividend Machine.   

HP Dividend Machine Criteria Table

Occidental Petroleum, symbol OXY

OXY is the diversified energy company and is my first 2015 Dividend Machine.   Trading today at about $76.97, OXY is a touch above the 52 week low of $72.32 and well off the 52 week high of $105.64.  Earnings far exceed dividends $7.16 EPS and $2.88 dividends.   The most current quarterly dividend is $.72 which is an annual yield of 3.74%.  D/E ratio for OXY is .16 well below the industry average of .31.

Dividend growth has been consistent and sustained.   Growth over the past 5 years has averaged 23.63% per year.    This is a growth rate I can live with.

OXY Dividend Machine Criteria Table

Consider one or both of these stocks for the income producing portion of your portfolio.