A Solid Dividend And The Possibility Of A Break-Up Are Why I'm Long Occidental Petroleum

| About: Occidental Petroleum (OXY)

On Thursday, May 23, it was announced that CEO Steve Chazen of Occidental Petroleum (NYSE:OXY) may consider selling the company's overseas assets or possibly splitting Occidental into three separate companies to fund a stock buyback and improve its share price. In the wake of Mr. Chazen's hint at a possible break-up, I wanted to take a closer look at not only the company's recent earnings performance, but several reasons why I think Occidental Petroleum could be a viable income-driven play.

Performance & Trend Status: On Thursday shares of OXY, which currently possess a market cap of $72.93 billion, a P/E ratio of 16.55, a forward P/E ratio of 12.10, and a forward yield of 2.83% ($2.56), settled at $90.53. Based on Thursday's closing price, shares of OXY are trading 0.86% above their 20-day simple moving average, 7.20% above their 50-day simple moving average, and 9.96% above their 200-day simple moving average. These numbers indicate a short-term, mid-term and long-term uptrend for the stock, which generally translates into a buying mode for traders.

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Soft Q1 Performance: On Thursday, April 25th Occidental Petroleum reported the results of what I believe to be a very soft first quarter. The company's Q1 EPS of $1.69 /share beat Street estimates by $0.14/share, and its revenue of $5.87 billion missed Street estimates by a disappointing margin of $0.53 billion. Although it missed revenue expectations the company's performance was driven by a 14.47% reduction in domestic well and operating costs which fell to $14.06/bbl from the year ago level of $16.44/bbl. It should also be noted that Occidental Petroleum managed to reduce its overall costs by a margin of roughly 19% on a year-over-year basis. Its year-over-year cost reduction helped soften the blow that was felt by a decline in both oil and gas prices. If the company can continue to demonstrate the reduction of both well and operating costs at vital times (as was the case in Q1), I think its overall performance will certainly benefit at least in the next 12-24 months.

A Changing of The Guard: On Friday, May 3rd, it was announced that former Ambassador Edward Djerejian had been elected as Independent Chairman of the Board, and former U.S. Energy Secretary Spencer Abraham had been elected as Independent Vice Chairman of Occidental. The election of both Mr. Djerejian and Mr. Abraham marked the end to Ray Irani's 30-year career at Occidental Petroleum.

Whenever there's a significant change at the top of a company shareholder's tend to wonder why, and Mr. Irani's absence at the company's annual shareholder meeting and his choice not to run for re-election, signaled that a swift change was certainly coming and such a change may in fact be embraced considered both Mr. Djerejian and Mr. Abraham were elected as his predecessors. I personally think the move was needed and if we're going to begin to consider the notion of a possible break-up, I strongly believe that both men would be on board with Mr. Chazen to explore any and all possible opportunities to enhance shareholder value.

Dividend Performance: Since March 6, 2009, OXY has increased its quarterly dividend a total of five times by an average of $0.064 each time. From an income perspective, the company's forward yield of 2.83% coupled with its continued annual increases could equate into a very viable income option for long-term investors in search of a moderate dividend play.

OXY Dividend Chart
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OXY Dividend data by YCharts

Conclusion: When it comes to those who may be looking to establish a position in Occidental Petroleum, I'd continue keep a watchful eye on the company's annual dividend behavior as well as any near-term developments regarding the idea of a possible break-up.

Disclosure: I am long OXY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.