Last update on 2024-06-27

EOG Resources (EOG) - Dividend Analysis (Final Score: 5/8)

EOG Resources' (EOG) dividend performance and stability analyzed using an 8-criteria scoring system. Final Score: 5/8. Find key findings and trends here.

Short Analysis - Dividend Score: 5

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

EOG Resources (EOG) has a mixed score in its dividend performance analysis. Its dividend yield of 4.7954% is higher than its 20-year historical averages but lower than the current industry average of 12.75%, making it less attractive to new, income-focused investors. However, its average annual dividend growth rate of 33.18% over the past 20 years far exceeds the 5% benchmark, indicating strong long-term growth potential. EOG's 20-year average payout ratio is very conservative at 12.27%, well below the recommended 65%, reflecting financial prudence and long-term dividend sustainability. The coverage of dividends by earnings and cash flow shows improvement over the years, but EOG has experienced fluctuations, including years with negative earnings. Despite a recent significant dividend cut in 2023, EOG has provided a generally stable dividend for over two decades and has consistently paid out dividends for more than 25 years. However, the company's stock repurchase activity is irregular and not a reliable value-return strategy.

Insights for Value Investors Seeking Stable Income

Based on the analysis, EOG Resources shows strong long-term potential in dividend growth and sustainability and has a proven history of payouts. However, its attractiveness might be limited due to lower dividend yields compared to the current industry average, fluctuations in earnings, and inconsistent stock repurchases. If you are a long-term investor focused on dividend growth and sustainability, EOG could be a viable option. But if you prioritize high dividend yields and consistent stock buybacks, you might want to consider other alternatives in the industry.

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 the ratio of a company's annual dividend compared to its share price. It represents the return on investment from dividends alone, and a higher yield can indicate a more attractive investment for income-focused investors.

EOG Resources has a dividend yield of 4.7954%, which is significantly higher than its 20-year historical averages but lower than the current industry average of 12.75%. Historically, EOG's dividend yield has seen a significant increase, particularly after 2019, which reflects more generous dividend payouts and possibly a shrinking share price. However, when compared to the industry's current average, EOG's yield appears less attractive for new investors who prioritize dividend income. This divergence raises questions about the company's ability and commitment to compete with industry standards, indicating a mixed trend. The rapid rise in dividend yield over recent years (from 0.9493% in 2015 to 6.7943% in 2022) could suggest both positive actions taken by the company and external pressures impacting its stock price.

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

The Dividend Growth Rate criterion measures the annualized percentage rate of growth of a company's dividend payments to its shareholders. Sustained growth rates above 5% usually indicate robust and consistent managerial decision-making and financial health.

EOG Resources experienced widely fluctuating dividend per share ratios over the past 20 years, peaking significantly in 2021 with a 226.50% increase, but also seeing occasional declines, such as in 2023 with -34.09%. The average dividend ratio for the period is 33.18%, which is well above the 5% growth rate criterion. However, the presence of zero and negative values implies instability and suggests that while years of high growth exist, the company has at times also faced challenges in maintaining consistent dividend growth. This trend shows a mixed but overall positive outlook if the average is considered. Thus, while volatile, this high average ratio indicates good long-term growth potential in dividends, which can be seen as a positive trend.

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

Discuss the significance of the average payout ratio over 20 years for EOG Resources (EOG) and its relevance to financial health and dividend sustainability.

The average payout ratio over the past two decades for EOG Resources stands at 12.27%, which is significantly lower than the 65% threshold. A payout ratio lower than 65% generally suggests that the company retains a substantial portion of its earnings, which can be reinvested in the business for growth, reducing debt, or cushioned for economic downturns. This is a positive sign indicating that EOG Resources has maintained a conservative approach in its dividend distribution, promoting long-term sustainability and financial resilience. Moreover, the low payout ratio implies that the dividends are well-funded by earnings, lowering the risk of dividend cuts in challenging periods.

Dividends Well Covered by Earnings?

Dividends well covered by earnings indicate a company's ability to sustain or increase dividend payouts without financial strain. It enables investors to gauge the potential for stable or growing income from dividends, thereby signaling financial health and profitability.

The earnings per share (EPS) for EOG Resources has shown considerable fluctuation over the years, with a mix of positive and negative values, reaching peaks such as 13.3087 in 2022 and deep troughs like -8.2912 in 2015. The Dividend per Share (DPS) has shown a more gradual increase, aside from the remarkable jump between 2020 and 2021 when it increased from 1.413 to 4.6135 and later to 8.8 in 2022. The ratio of EPS to DPS indicates the extent to which earnings cover dividends. A positive ratio signals good coverage, whereas negative ratios (years with negative EPS) imply dividends are unsustainable through earnings alone. Years like 2015 and 2020 where the ratio turns negative (-0.081 and -1.352 respectively) is alarming, while ratios above 0.4, as in 2021 and 2022 (0.574 and 0.661 respectively), indicate relatively good coverage. Such good coverage years become essential for investor confidence. However, the fluctuating nature across years requires caution.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow imply the company's dividends are sustainable. It is important because it shows that the company can continue to pay dividends without jeopardizing its financial health.

When reviewing EOG Resources' coverage ratio of dividends by free cash flow over the past two decades, several key trends emerge. From 2003 to around 2007, free cash flow coverage of dividends was relatively weak, often below 1, indicating the company did not generate enough free cash flow to cover dividend payouts in several years. This was particularly apparent in 2004 and mid-2000s with coverage dropping below zero at some points. However, one notable exception occurred in 2004 with an impressive 1.359 ratio. From 2011 to 2014 we see fluctuations with adequate coverage in 2013 (ratio of 0.741) but issues elsewhere. Post-2016, the situation improves significantly. In 2017, the coverage ratio jumps to 2.74 and continues a relatively stronger trajectory up to 2023, peaking between 0.5 and 0.8. Notably, 2019 records an all-time high 5.43 indicative of a robust coverage then. Overall, the trend appears quite positive in the last decade. The company now shows strong ability to cover its dividends from free cash flow which bodes well for the sustainability of dividend distribution. The most recent coverage at 0.65 (2023) while not as impressive as 2019, indicates sufficient but not exceptionally strong coverage. Such insight implies attentive dividend management by EOG acknowledging improvements, potential challenges yet projecting dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

The criterion assesses the stability of EOG Resources' dividend payments over the past 20 years. This stability is crucial for income-seeking investors because it ensures a reliable source of income. A drop in dividends by more than 20% would indicate potential risks in the company's ability to generate consistent profits and distribute them to shareholders.

The dividend per share values for the past 20 years show a steady increase overall, with some remarkable peaks in recent years. However, it is noteworthy that in 2023, the dividend dropped from 8.8 to 5.8, marking a decline. Although this drop is significant, it is important to understand that the overall trend showcases robust growth in dividends. Long-term investors might consider this acceptable given the extraordinary spike observed in previous years and the sustained growth beforehand. It highlights EOG Resources' capacity to reward its shareholders consistently over two decades.

Dividends Paid for Over 25 Years?

Analyzing if a company has paid dividends consistently for over 25 years.

EOG Resources (EOG) has demonstrated a strong commitment to its shareholders by paying dividends consistently for over 25 years. This consistency in dividend payments underscores the company's financial stability and management's confidence in the business's ongoing cash flow. Reviewing the data from 1998 to 2023, it's noteworthy that dividends per share have shown a general upward trend. Significant dividend payouts in recent years, such as $8.80 in 2022 and $5.80 in 2023, along with the increase from 2010 onwards, highlight robust growth. This trend is favorable and portrays EOG as a reliable dividend-paying stock, integral for income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Assessing the reliability of stock repurchases over the past 20 years for a company like EOG Resources (EOG) involves examining the regularity and consistency with which the company has engaged in share buybacks. Reliable stock repurchases can indicate a company’s commitment to returning value to shareholders and potentially signal management’s confidence in the company’s future prospects.

By examining the data provided, it appears that EOG Resources has repurchased shares in the years 2015, 2019, and 2023. However, the overall trend shows an increasing number of shares outstanding from 2003 to 2023, growing from 466,076,000 shares to 581,000,000 shares. This suggests limited reliability in stock repurchasing activities. An average repurchase rate of 1.1176 over 20 years is low, and it implies that stock buybacks have not been a strong method of returning value to shareholders during this period. Consequently, EOG Resources' stock repurchase strategy may not be considered reliable, potentially impacting investor sentiment negatively.