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It has been a while since I wrote about ConocoPhillips (COP) and it seems like a good time to revisit its value proposition as I prepare the core positions for my income portfolio in 2013.

Key recent positives for ConocoPhillips:

  • The company successfully spun off its refinery arm, Phillips 66 (PSX), in April. This has been a huge win for shareholders who held onto their shares as PSX is up some 60% since it became a separate public company. It also just announced a dividend hike and stock buyback.
  • It has easily beat earnings estimates each of the two quarters since the spinoff.
  • Consensus earnings estimates for both FY2012 and FY2013 have risen over the last three months, despite the recent fall of oil prices.
  • The company recently approved a 2013 capital budget that will help COP become a bigger player in geopolitically stable North America with 60% of its budget allocated to projects in North America.
  • With the spinoff of its refinery business and some asset divestitures, the company can now concentrate on raising production by 3% to 5% a year over the next half decade.

4 additional reasons COP is solid value play at has upside from $61 a share:

  1. The stock yields a robust 4.6% and has raised payouts by over 14% on average annually over the past five years.
  2. COP sells in the bottom third of its five year valuation range based on P/E, P/B, P/CF and P/S.
  3. COP sells for a very reasonable 10x forward earnings for such a high yielder. It is also aiming to be a major player in the promising Eagle Ford, Bakken and Permian Basin shale regions.
  4. The company has an A rated balance sheet, consistently buys back huge amounts of stock and is selling at around 4.5 times operating cash flow based on its first two quarters as a standalone E&P company.

Bottom Line: Income investors looking for a generous yield and consistent production increases should consider COP for their income portfolios.

Source: Revisiting ConocoPhillips Value Proposition