Get Ready for Higher Dividends from Big Oil

At the ConocoPhillips analyst meeting on Thursday, the chief executive and chief financial officer of the exploration and production player told investors and analysts that there is no reason to worry about the company’s ability to pay dividends and to increase its dividend through time.

Some worries have been expresses over cash flow issues. With the company having spun off Phillips 66 (NYSE: PSX), other asset sales are expected to add the capital needed to cover drilling costs and exploration efforts. The message from the CEO and CFO signaled that the dividend is a top priority, even with a high capital spending plan of about $16 billion, more or less, over the next few years. Management showed that there was more than $4 billion in cash and more than $9 billion coming from asset sales, versus a market capitalization of about $71 billion.

CEO Ryan Lance again said that investors should expect modest dividend increases over time. The current quarterly payout of $0.66 per share per quarter generates a dividend yield of 4.54% with the $58.15 share price as of Thursday. As far as why this matters, Exxon Mobil Corp. (NYSE: XOM) yields 2.6% and Chevron Corp. (NYSE: CVX) yields about 3.1% for their common shareholders, before the coming dividend hikes we expect very soon.

As far as how this relates to annual estimates, the $2.64 annualized dividend payout by ConocoPhillips is about 48% of the Thomson Reuters consensus earnings estimate of $5.46 per share for the full year 2013. Before the expected dividend hikes, both Exxon and Chevron have payout rates of about 29% of their fiscal 2013 earnings estimates.