Last update on 2024-06-27

ConocoPhillips (COP) - Dividend Analysis (Final Score: 6/8)

Evaluating ConocoPhillips (COP) dividend performance with an 8-criteria system. Final score: 6/8. Analyses include dividend yield, growth rate, payouts, and stability.

Short Analysis - Dividend Score: 6

We're running ConocoPhillips (COP) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

ConocoPhillips (COP) dividend analysis scored 6 out of 8, focusing on dividend yield, growth rate, payout ratio, earnings coverage, cash flow coverage, stability, continuity, and stock repurchases. COP has fluctuated dividend yields below the industry average at 3.37%. It has a strong average dividend growth rate of 15.28% over 20 years, a very low and healthy payout ratio of 4.02%, but inconsistent earnings and cash flow coverage. COP showed dividend stability, paying consecutively for over 25 years, and reliable stock repurchases in 13 out of 20 years.

Insights for Value Investors Seeking Stable Income

Investors may consider ConocoPhillips, especially those who value long-term consistent dividend payments and stock repurchases. However, due to inconsistencies in earnings and cash flow coverage, it might not be ideal for those relying solely on dividend income. Potential investors should look deeper into recent performance trends and industry comparisons before making decisions.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It's an important criterion as it signifies the income generated from each dollar invested in a stock.

The dividend yield of ConocoPhillips (COP) over the last 20 years shows fluctuations, with a current yield of 3.3687% which significantly trails the industry average of 12.75%. While COP's dividend yield appears stable, it underperforms when compared to the larger energy sector. COP's stock price has increased substantially over 20 years, reflecting strong absolute performance—an important factor for investors. Nevertheless, the lower dividend yield could be a signal for income-focused investors to consider more competitive dividend-paying opportunities within the industry.

Average annual Growth Rate higher than 5% in the last 20 years?

Evaluating the Dividend Growth Rate (DGR) over a significant period, such as 20 years, helps in understanding the long-term return potential for investors. A DGR higher than 5% is generally considered good as it not only outpaces inflation but also indicates a company's robust financial health and shareholder-friendly policies.

The average dividend ratio for ConocoPhillips (COP) over the last 20 years stands at approximately 15.28%. Although there are fluctuations in individual years, with a notable negative ratio in 2016 and extreme values in 2022, the overall average well exceeds the 5% threshold. This trend is good for ConocoPhillips' dividend credibility. The high average indicates robust financial management, despite occasional volatility. Large deviations in some years warrant closer scrutiny, yet the long-term trend is promising for income-focused investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

The average payout ratio is a critical metric in evaluating a company's dividend sustainability. It measures the percentage of earnings paid to shareholders in dividends. A payout ratio lower than 65% is generally considered healthy, indicating that the company retains enough earnings for growth and other needs.

ConocoPhillips (COP) has an average payout ratio of 4.02% over the last 20 years, which is significantly lower than the 65% threshold generally considered as the upper limit for a healthy payout ratio. The low average payout ratio suggests that ConocoPhillips has maintained a prudent approach in terms of its dividend payments, retaining the majority of its earnings for reinvestment or other financial strategies. This trend is overwhelmingly positive as it implies a strong capacity for sustaining and potentially increasing dividend payments in the future without jeopardizing its financial stability. However, it's important to note some anomalies in the payout ratio history. For example, the large negative values in 2008, 2015, 2016, and 2020 indicate that the company may have faced periods of significant net losses, requiring a deeper investigation into these particular years to understand the underlying issues. Despite these anomalies, the overall trend remains favorable.

Dividends Well Covered by Earnings?

Evaluating whether dividends are well covered by earnings means checking if a company generates enough profits to pay its dividends. It is essential for sustainable dividend policies and long-term financial health.

From the data provided, we can see that there are fluctuations in ConocoPhillips' ability to cover dividends with its earnings per share (EPS). For instance, the EPS to DPS ratio was above 1 in the years 2019, 2022, and 2023, reporting values of 0.207, -0.674, and 0.319, respectively, suggesting better coverage in those years. However, negative ratios in 2008, 2015, and 2016 ( -0.128, -0.824, and -0.344 respectively) show that the company's earnings were insufficient to cover its dividends, which is unfavorable for long-term sustainability. This inconsistency indicates a volatile ability to maintain dividend payments sustainably, which can be concerning for investors looking for reliable income streams.

Dividends Well Covered by Cash Flow?

Dividend coverage ratio evaluates whether a company's free cash flow sufficiently covers its dividend payouts. This ratio is critical since a higher ratio provides assurance of dividend sustainability.

ConocoPhillips (COP) shows varying abilities to cover its dividend payouts through its free cash flow (FCF) over the years. The ratio has swings from exceptionally high coverage, like in 2009 (1.75) and 2020 (21.046), to significantly negative values in years like 2012 (-13.112) and 2014 (-10.071). More recent years like 2021 and 2022 depict lower ratios of 0.202 and 0.315, respectively, while 2023 records a positive 0.640. Inconsistent FCF and unpredictable oil and gas market dynamics significantly affect these coverage ratios. A positive trend in 2023 suggests improved capability to cover dividends, but the overall volatile pattern reflects underlying risks to dividend stability.

Stable Dividends Since the Company Began Paying Dividends?

Stable, consistent dividend payments reflect a company's financial health and its commitment to returning value to shareholders, thus making it crucial for income-dependent investors.

Over the past 20 years, ConocoPhillips (COP) has generally maintained a steady upward trend in dividend payments, with only a few fluctuations. In particular, there was a drop in dividend per share in 2016 to $1 from a consistent $2.94 in 2015, which is a significant reduction but remained above a 20% decline threshold. This span encapsulates periods of economic downturns, including the 2008 financial crisis and oil price volatility. More recently, in 2020, due to the COVID-19 pandemic, there was another noticeable but not catastrophic dip in dividends, reflecting COP's adaptability and steady financial footing given market conditions. Reflected as a signal of stability and careful financial management, the absence of drops greater than 20% is a positive trend, comforting for income-seeking investors.

Dividends Paid for Over 25 Years?

This criterion evaluates whether ConocoPhillips has consecutively paid dividends for over 25 years. Consistency in dividend payments can signal financial stability and shareholder commitment, which are crucial for investors seeking reliable income.

The data provided shows that ConocoPhillips has consistently paid dividends from at least 1998 to 2023, fulfilling the 25-year criterion. Over this period, we can observe gradual increases in the dividend per share, indicating a positive trend. Despite a noticeable dividend cut in 2016 to $1 per share—down from $2.94 in 2015—the company has demonstrated resilience by recovering in subsequent years, with substantial dividends of $4.99 per share in 2022 and $3.91 in 2023. The overall trend suggests a strong commitment to returning value to shareholders, which is beneficial for income-seeking investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases refer to a company's consistent pursuit of buying back its own shares over a long period.

Over the past 20 years, ConocoPhillips (COP) has shown a varied trend in stock repurchases. The company has bought back shares in 13 out of the 20 years analyzed. It’s worth noting that share buybacks can indicate a company’s confidence in its own financial health and can be an effective way to return value to shareholders. For instance, from 2011 to 2020, COP repurchased shares in almost every year except 2014 and 2016. Major reductions in shares outstanding occurred in 2012 and 2019. The average rate of repurchase at -0.4163 signifies a general reduction in shares outstanding, which is a positive sign indicating reliable buyback strategies. This consistent pattern portrays COP as a company prioritizing shareholder value.