Occidental Produces Dividends, But Should You Buy?

Sep.11.13 | About: Occidental Petroleum (OXY)

Occident Petroleum Corporation (NYSE:OXY) is an oil & gas production company which operates in three segments: Oil & Gas, Chemical, and Midstream, Marketing and Other. On July 30, 2013, the company reported second-quarter earnings of $1.58 per share, which missed the consensus of analysts' estimates by $0.05. Since last writing about the stock back on August 5, 2013, the stock is up 0.83% excluding dividends (up 1.54% including dividends), and is beating the S&P 500, which has lost 1.5% in the same time frame. With all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some more of the company right now for the basic materials sector of my dividend portfolio.

Fundamentals

Occidental currently trades at a trailing 12-month P/E ratio of 16.36, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 12.16 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $7.37 per share and I'd consider the stock inexpensive until about $110. The 1-year PEG ratio (3.29), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 4.97%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to what it is right now.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

05Aug13

88.92

16.23

12.08

7.36

110

3.05

5.31

11Sep13

89.66

16.36

12.16

7.37

110

3.29

4.97

Click to enlarge

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Occidental pays a dividend of 2.86% with a payout ratio of 43.5% of trailing 12-month earnings while sporting return on assets, equity and investment values of 6.7%, 10.7% and 9%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 2.86% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 11 years with a 5-year dividend growth rate of 17.2%.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

05Aug13

2.88

43.5

6.7

10.9

9.0

11Sep13

2.86

43.5

6.7

10.7

9.0

Click to enlarge

Technicals

Click to enlarge

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around near overbought territory with a value of 62.59 with upward trajectory, which is a bullish pattern that's getting tired. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is above the red line with the divergence bars flattening out in height, indicating the stock is tired and may experience some downward momentum. As for the stock price itself ($89.66), it is hitting quite a bit of resistance at the $89.92 level while I would look at $87.11 to act as support for a risk/reward ratio, which plays out to be -2.84% to 0.28%.

Recent News

  1. Recently Apache (NYSE:APA) sold a third of its Egyptian oil and gas assets and sets a bit of precedence for Occidental to do the same. Occidental produces about 37% of its output from the Middle East/North Africa region and is thought to be looking to some of those assets, if not all.
  2. The company declared a quarterly dividend of $0.64 with an ex-date of 06Sep13 and a pay date of 15Oct13.
  3. Clashes at oil terminals in Libya forced closures of key oil ports and halved the country's production to about 600,000 barrels per day. Occidental is responsible for shipping the oil out of Libya through a partnership with NOC and OMV (OTC:OMVJF).

Conclusion

Occidental is the biggest producer in the Permian Basin; inexpensively valued based on future earnings but expensive on future growth prospects (one-year outlook). The stock has gotten more expensive on earnings and growth in the last month which is due to the increasing stock price. Financially, the dividend payout ratio is middle of the road on trailing 12-month earnings, but I don't doubt management will be able to continue to increase the dividend going forward; based on future earnings the dividend payout ratio goes down to around 34% (if the dividend is kept steady). The technical situation of how the stock is currently trading is telling me we might be seeing some downward pressure. The inexpensive valuation of the company is the only thing it has going for it right now which is not a really compelling story to get me to buy more of the stock in the face of bearish technicals at these levels. I'm going to wait a few weeks to evaluate again and see if it is safe to jump in.

Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

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.