Occidental Petroleum Corp. (NYSE: OXY) is rewarding its shareholders once again with a quarterly dividend of $0.22, payable on Wednesday, Jan. 15. That is in line with the prior payout. This is Warren Buffett’s favorite energy stock, and the ongoing dividend payment underscores the management’s commitment to delivering consistent value to investors.

Why Investors Like Dividends

Investors favor dividend stocks for two main reasons. The first is that they offer enticing total return potential. Total return is a comprehensive measure of investment performance that includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. It is one of the most effective ways to boost the prospects of overall investing success.

Dividend stocks can also provide investors with a steady, reliable stream of passive income. Passive income is money that is earned with little to no ongoing effort, usually from assets that generate cash flow. This income can come from a variety of sources, including stock dividends. Generating passive income is a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.

A Buffett Pick

Occidental makes up more than 5% of the Berkshire Hathaway Inc. (NYSE: BRK-B) portfolio. And the more than 13.3-million-share stake is about 29% of Occidental, worth about $13 billion. That makes Berkshire Hathaway a beneficial owner, as its stake is more than 10%. Buffett first started buying shares in 2019 in support of Occidental’s acquisition of Anadarko Petroleum. The most recent purchase, 3.6 million shares, came just before Christmas.

Occidental increased its dividend annually from 2006 until 2020. Since that reset, the quarterly payout has increased 2,100%. The current dividend yield is about 1.7%, which is more than the sector average but less than the industry average. For Berkshire Hathaway, that works out to an almost $2 million payout in the latest quarter.

The Company

The company engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, and North Africa. It has a significant presence in the Permian basin and in the Gulf of Mexico. The company operates through the following three segments.

The Oil and Gas segment explores for, develops, and produces oil and condensate, natural gas liquids (NGLs), and natural gas.

Its Chemical segment manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride, as well as vinyls comprising vinyl chloride monomer, polyvinyl chloride, and ethylene.

The Midstream and Marketing segment gathers, processes, transports, stores, purchases, and markets oil, condensate, NGLs, natural gas, carbon dioxide, and power. This segment also invests in entities.

Company headquarters are currently in Houston, Texas. It was founded in 1920 in Los Angeles, and tycoon Armand Hammer was chief executive officer from 1957 to 1989. The company went public in March of 1964. Now, it competes with or is similar to, among others:

• ConocoPhillips (NYSE: COP)
• EOG Resources Inc. (NYSE: EOG)
• Hess Corp. (NYSE: HES)
• Kinder Morgan Inc. (NYSE: KMI)
• Murphy Oil Corp. (NYSE: MUR)

As mentioned, Buffett continues to build his Oxy stake. The company crushed earnings expectations in the third quarter and said it had reduced its debt by $4 billion. Fourth-quarter and full-year results are scheduled to be posted on February 18. Occidental completed its acquisition of CrownRock last year.

The Stock

The share price is less than 5% higher than five years ago, underperforming the Dow Jones industrial average in that time. In the past year, the stock is down over 9%, also underperforming the broader markets. But it has bounced back from a recent 52-week low of $45.17 per share. The $62.25 consensus price target indicates that the analysts anticipate about 21% upside in the next 52 weeks. Yet their consensus recommendation is to hold shares. Piper Sandler and Truist Securities recently reiterated Neutral-equivalent ratings.

Occidental is popular with hedge funds, and institutional investors hold nearly 51% of the shares. Besides Berkshire Hathaway, BlackRock, State Street, and Vanguard have notable stakes. More than 35 million shares, or over 4% of the float, are held short.

Warren Buffett Surprises With Three Huge Insider Buys

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.