Drilling For Dividends With Occidental Petroleum

Dec.13.13 | About: Occidental Petroleum (OXY)

The last time I wrote about Occidental Petroleum Corporation (NYSE:OXY) I did not buy anymore shares stating that I saw bearish technicals. The stock is down 6.73% excluding the dividend (-6.06% including the dividend) since last writing the article versus the 1.18% gain the S&P500 (NYSEARCA:SPY) posted. Occidental is an oil & gas production company, which operates in three segments: Oil & Gas, Chemical, and Midstream, Marketing and Other. On October 29, 2013, the company reported third-quarter earnings of $1.97 per share, which beat the consensus of analysts' estimates by $0.09. During the past year the company's stock is up 21.06% excluding dividends (up 23.91% including dividends), and is losing to the S&P 500, which has gained 25.21% 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 more shares of the company right now for the basic materials sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 15.87, 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 12.47 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $7.32 per share and I'd consider the stock inexpensive until about $110. The 1-year PEG ratio (4.64), 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 3.42%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

23Oct13

97.82

17.71

13.02

7.46

112

3.64

4.87

12Dec13

91.24

15.87

12.47

7.32

110

4.64

3.42

Click to enlarge

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.81% with a payout ratio of 45% of trailing 12-month earnings while sporting return on assets, equity and investment values of 6.9%, 11.1% and 9%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.81% 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 at a 5-year dividend growth rate of 17.2%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

23Oct13

2.64

47

6.7

10.7

9

12Dec13

2.81

45

6.9

11.1

9

Click to enlarge

Technicals

Click to enlarge

Looking first at the relative strength index chart [RSI] at the top, I see the stock near oversold territory with downward trajectory and a value of 32.8, indicating a bearish pattern. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars flattening out in height, indicating the bearish pattern is losing momentum. As for the stock price itself ($91.24), I'm looking at $92.54 to act as resistance and the 200-day simple moving average (currently at $88.75) to act as support for a risk/reward ratio, which plays out to be -2.73% to 1.42%.

Recent News

  1. Libyan oil ports are set to reopen on an agreement for greater regional oversight. The closed ports accounted for more than half of Libya's oil exports. Occidental exports a good portion of said oil exports from Libya.
  2. Gulf outfits consider bidding for Occidental's Middle East stake. Selling a stake in the Middle East assets was a part of Occidental's plan for restructuring laid out back in October. Any sort of deal for a minority stake in the assets should equal about $8-$10 billion in Occidental's coffers.

Conclusion

The company is basically moving forward with restructuring itself looking to unlock value for its shareholders. Keeping that in mind, I believe the stock is now inexpensively valued based on future earnings and expensive on growth potential. The earnings estimates for next year have been reduced from when I last looked at the company and that concerns me. Financially the company has improved its returns on equity, assets, but the dividend yield has increased at the expense of a lower share price. Right now the dividend is too low to be hiding out in the name if you're looking for shelter if there is to be some market turbulence, I'd like to see it yield 3% before putting in a full purchase. On a technical basis I'd suspect the bearish move in the stock is about to subside but would not be surprised to see it fall more at the expense of the overall market for the short term. It is for these reasons I will be buying a small batch in the stock right now because I don't think anyone can pick the bottom. I'd like to see it come in a bit more before plowing a bigger amount of cash into the stock.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. 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, SPY. 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.