On Thursday, July 11, ConocoPhillips (NYSE:COP) announced a quarterly dividend increase of $0.03/share, bringing its upcoming dividend payout to $0.69/share. It should be noted that this boost represents a 4.5% increase from its prior dividend of $0.66/share, which was paid on June 3. In the wake of COP's dividend increase, I wanted to not only examine the company's recent performance but take a look at several catalysts behind my decision to establish a long-term position in the company.
Performance & Trend Status: On Thursday shares of COP, which currently possess a market cap of $79.06 billion, a P/E ratio of 10.98, a forward P/E ratio of 10.73, and a forward yield of 4.34% ($2.76), settled at $64.32. Based on Thursday's closing price, shares of COP are trading 4.79% above their 20-day simple moving average, 4.22% above their 50-day simple moving average, and 10.56% 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.
Libya's Es Sider Terminal Back Online: On July 9th, and after being shut down for an extended period of time due to civil unrest and protest, Libya's Es Sider Terminal has been brought back online. According to an article featured on Nasdaq's website, "The Es Sider terminal normally exports 300,000 barrels a day of crude, about a quarter of the 1.2 million barrels a day experts say Libya exported on average last year. Es Sider exports crude from the Waha Oil Co., which is one of Libya's largest joint ventures in which U.S. companies Marathon Oil Corp (NYSE:MRO), ConocoPhillips and Hess Corp. (NYSE:HES) are partners." Although only offline for a limited amount of time, the shutdown played a key role in the near term performance of crude oil and as a result prices have risen above the $105/barrel plateau for the first time in over a year.
The Possibility of A Shale-based Spin-Off: One of the most interesting propositions in the oil and gas sector is the recent notion of the possibility of several big name producers potentially spinning-off their U.S.-based shale businesses. Not only are names like Occidental (NYSE:OXY) and Talisman (NYSE:TLM) being included in such conversations, but I strongly think ConocoPhillips has every right being included as well.
Why do I think such moves could potentially benefit the shareholders of ConocoPhillips? I strongly believe that there is a very good chance for shareholders to unlock some serious value, especially if we were to consider the recent valuation of Occidental that was calculated by Doug Leggate of Bank of America, when the idea of a similar spin-off was recently discussed. For example, and by the numbers he calculated in mid-June, Occidental could be worth as much as $121 billion, or 64% more than the $74 billion the company was recently valued at. In my humbly conservative opinion, ConocoPhillips could see a valuation increase of 18%-25% if such a move were to occur in the next 12-24 months, which would increase the company's value to between $93 billion and $98 billion.
24-Month Dividend Behavior: Since June 21, 2011, COP has maintained its quarterly distribution of $0.66/share over the last eight payable quarters, with only exception coming as a result of Thursday's announcement. From an income perspective, the company's forward yield of 4.34% ($2.76) coupled with a payout ratio of 43.00% could make this particular stock a very viable income option for long-term investors in search of a higher-yielding play in the oil and gas sector.
Conclusion: When it comes to those who may be looking to establish a position in ConocoPhillips, I'd continue to keep a watchful eye on not only the company's dividend behavior over the next 12-24 months, but any growth directly related to company's operations in Libya and the potential for the possibility of a spin-off separating the company's U.S. and foreign operations.