Last update on 2024-06-27

Marathon Oil (MRO) - Dividend Analysis (Final Score: 5/8)

Comprehensive analysis of Marathon Oil's dividends, revealing performance and stability via an 8-criteria scoring system. Final dividend score: 5/8.

Short Analysis - Dividend Score: 5

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

Quick score summary: Marathon Oil (MRO) scored a 5 out of 8 in the dividend analysis. Key criteria: 1. Dividend Yield: MRO's yield (1.697%) is lower than industry average (12.75%). 2. Dividend Growth Rate: Around 9.55% on average over 20 years, but has been volatile. 3. Payout Ratio: Average of 12.0%, much lower than 65% threshold, showing cautious dividends. 4. Dividend Coverage by Earnings: Generally weak with periods of negative ratios. 5. Dividend Coverage by Cash Flow: Inconsistent, low coverage indicating potential risks. 6. Stable Dividends: Significant fluctuations over the years, recently less stable. 7. Dividends Paid Over 25 Years: Yes, since 1998, showing long-term commitment despite variability. 8. Stock Repurchases: Consistent buybacks, positive trend for shareholder returns.

Insights for Value Investors Seeking Stable Income

Despite a solid payout ratio and long-term dividend payments, MRO's low dividend yield, poor coverage ratios, and fluctuating dividends raise concerns. For income-focused investors, MRO might not be ideal due to its instability and low returns. However, those prioritizing growth over income may find potential due to the company's reinvestment strategy and stock price growth. Overall, it's worth cautious consideration, primarily for growth-focused rather than income-focused portfolios.

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 annual dividends paid per share to the stock's price per share. It's a key indicator for assessing the return on investment from dividends. A higher yield suggests more generous returns.

Marathon Oil's current dividend yield of 1.697% is significantly lower than the industry average of 12.75%. Looking at the historical data, MRO's dividend yield has fluctuated but generally remained below the industry average, especially in recent years. This low yield suggests that MRO is less attractive to income-focused investors who prioritize dividends. However, it's also crucial to consider that a high dividend yield could sometimes indicate a distressed stock price, which might not be the case for MRO. Given the steady rise in stock price close from 2020 ($6.67) to 2023 ($24.16), it seems the company might be focusing more on growth rather than high dividend payouts. Therefore, while the trend isn't favorable for dividend hunters, it might be an indicator of underlying business strength and growth potential.

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

The Dividend Growth Rate is the percentage increase in dividends distributed per share over time.

Upon analyzing the dividend per share ratio of Marathon Oil (MRO) over the last 20 years, the average dividend ratio stands at approximately 9.55%. However, it's important to note extreme fluctuations in their dividends, including significant drops in certain years (for example, -70.5882% in 2016) and considerable increases in others (e.g., 125% in 2021). These fluctuations could indicate volatility and may raise concerns about the sustainability and stability of the company's dividend payouts. This inconsistency generally suggests a lack of robust financial health or external market dependencies, but the overall average exceeding 5% means their long-term growth criterion is exceeded, which is a good sign.

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

The average payout ratio is calculated to assess the sustainability of dividend payouts by comparing the portion of earnings paid out to shareholders.

Based on the data provided, Marathon Oil (MRO) has maintained an average payout ratio of 12.0% over the past 20 years. This is considerably below the 65% threshold, which indicates that MRO has been conservative in distributing a portion of its earnings as dividends to shareholders. Such a low payout ratio can be seen as a positive trend for a company operating in the volatile oil and gas industry, reflecting a cautious approach that prioritizes retaining earnings to reinvest in the business or maintain liquidity during economic downturns. Moreover, this trend suggests that MRO has ample room to increase dividends in the future if desired or required. The negative payout ratios in certain years (e.g., 2015, 2016, 2020) indicate losses rather than an unsustainable dividend policy. Overall, this conservative average payout ratio indicates a strong capacity to sustain and possibly grow future dividend payments.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings when a company’s earnings per share (EPS) is significantly higher than its dividend per share (DPS). This ratio is crucial for evaluating the sustainability of dividend payments and financial health.

Over the past two decades, Marathon Oil's dividend coverage ratio—that is, how well earnings can cover dividends—has been inconsistent. The Dividend Cover Ratio is often below 1, indicating that MRO's EPS does not sufficiently cover its DPS, which raises concerns about dividend sustainability. Specifically, we observed negative coverage ratios for the years 2015, 2016, and 2020, reflecting periods of financial strain, often coinciding with broader industry downturns. Positive coverage above 0.3 in 2019 and 2021 show partial recovery, but the recent downward trend reaching 0.160 in 2023 is worrying. Hence, the trend generally points to weak dividend coverage, which can be risky for investors reliant on stable dividends.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow is a critical criterion because it reflects the capability of a company to generate enough cash to sustain dividend payments. Adequate coverage ensures the company can meet its obligations to shareholders without compromising its financial stability.

Marathon Oil's covering of dividends using free cash flow has been inconsistent over the years. Especially notable are the years with negative free cash flow such as 2008, 2009, 2012, 2015, and 2016, where the cash coverage for dividends was also negative. More recent data, particularly from 2020 to 2023, indicates low coverage ratios of around 0.0639 to 0.1222, before increasing slightly in 2023 to 0.122. This fragile trend points towards a potential risk in Marathon Oil's ability to maintain its dividend payout sustainably unless there is a significant improvement in free cash flow generation. Generally, it is favorable to have a coverage ratio above 1, indicating dividends are well-covered by free cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the past 20 years is of utmost importance for income-seeking investors.

Looking at the dividend per share for Marathon Oil (MRO) over the past 20 years, it can be observed that there were significant drops, particularly in recent years. For instance, dividends per share dropped from $0.8 in 2014 to $0.68 in 2015, and further down to $0.2 in 2016 which is a substantial decrease of 75%. The dividend dropped even further in subsequent years, reaching $0.08 in 2020 before rebounding slightly to $0.41 in 2023. These fluctuations indicate a lack of stability in dividend payments for Marathon Oil (MRO) compared to what income-seeking investors generally look for. The substantial drop in specific years highlights the volatility in dividend policy, making this trend negative for those prioritizing dividend stability.

Dividends Paid for Over 25 Years?

Consistent dividend payments over 25 years indicate the company's stability and commitment to returning value to shareholders.

Marathon Oil (MRO) has shown a consistent record of paying dividends every year since 1998. The dividend per share started at $0.2505 in 1998 and increased to $0.41 in 2023. This 25-year span of dividend payments reflects the company’s stability and shareholder-friendly policy. However, there was a significant reduction in dividends between 2014 and 2020, with the lowest being $0.08 in 2020, likely due to financial or market challenges. Overall, this trend is positive as it demonstrates a long-term commitment to returning capital, despite some variability.

Reliable Stock Repurchases Over the Past 20 Years?

Assessing the history of share repurchases by a company is important to understand its capital allocation strategies. Consistent repurchases can indicate a company's confidence in its own future prospects and a commitment to returning value to shareholders.

Examining Marathon Oil's (MRO) share repurchasing trend across the last 20 years, there have been significant instances where the company has actively bought back its stock. Notable repurchase years include 2007, 2012, 2013, 2014, 2015, 2018, 2019, 2020, 2021, 2022, and 2023. This consistent effort in repurchasing shares highlights MRO’s strategic move to enhance shareholder value through capital returns. For instance, the number of shares reduced significantly from 847 million in 2016 to 607 million in 2023—a decline of approximately 28.34%. However, some years like 2016 saw an increase in share count, possibly reflecting merger or acquisition activities, or issuance of shares for other purposes. On average, a repurchase rate of 0.1506 indicates a healthy intervention by the company in managing its outstanding shares, illustrating good stewardship in capital allocation. Overall, this trend is positive for shareholders looking for consistent returns and reflects MRO's robust financial health.