• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes Middle East on brink: Oil tankers attacked off Oman
  • 8 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 39 mins The Plastics Problem
  • 3 hours Emissions Need To Be Halved To Avoid 3C Warming
  • 3 hours Confirmed: UN Expert Urges Probe Of Saudi Prince Over Khashoggi Killing
  • 37 mins OPEC, GEO-POLITICS & OIL SUPPLY & PRICES
  • 30 mins Hormuz and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack
  • 5 mins Coal Boom in Asia is Real and a Long Trend
  • 53 mins The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief
  • 3 hours The Pope: "Climate change ... doomsday predictions can no longer be met with irony or disdain."
  • 57 mins Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 53 mins US to become net oil exporter in November: EIA
  • 22 mins Trudeau approves Trans Mountain Pipeline
  • 4 hours Fareed Zakaria: Canary in the Coal Mine (U.S. Dollar Hegemony)
  • 3 hours Hydrogen FTW... Some Day
  • 1 hour US Shale Drilling lacks regulatory body.
Alt Text

Why The Oklahoma Shale Boom Isn’t Taking Off

Major geological challenges and relatively…

Alt Text

The Top 50 Oil & Gas Companies Of 2019

The playing field for global…

Rakesh Upadhyay

Rakesh Upadhyay

Rakesh Upadhyay is a writer for US-based Divergente LLC consulting firm.

More Info

Trending Discussions

Are Oil Dividends Worth it?

Are you tempted by nice dividends such as BP’s 7.53 percent and Shell’s 7.31 percent? Long-term investors are. They’re lapping up the oil majors on dips to cash in on their impressive dividend yields in hopes that the massive rally in crude oil from the lows of $27.10 per barrel is an indication that crude has bottomed out and higher prices are around the corner.

The large investors are pursuing the oil majors for their stability and safety, which has boosted their prices, but even after the rise, prices remain below their 2015 highs.

The oil majors are expected to report poor numbers this earning season. Jefferies’ equity analyst Jason Gammel believes that the “1Q16 reporting period looks set to be even worse than what we thought was already an especially ugly 4Q15." Related: Despite Claims, Ukraine Not Free Of Russian Energy Dependence

The U.S. Energy Information Administration (EIA) has forecast an average price of $35/b in 2016 and $41/b in 2017, which is well below the 2015 average of $49/b.

Though the oil companies have cut costs and scrapped investments for the future projects, an average price realization of $41/b by 2017 will test their resolve to continue paying high dividends.

Under such circumstances, is buying the oil majors a smart strategy?

The stock market is forward looking. Analysts and investors always focus on the future prospects while valuing a company. And there are, in fact, a couple of points in favor of the oil majors. Related: China Stockpiling Oil At Highest Rate In Over A Decade

The worst in terms of oil prices is behind us. Oil demand remains robust whereas production is decreasing. The supply glut is likely to ease considerably by the year’s end. All of this is positive news for the oil companies.

Consider the dividends of the oil companies, BP at 7.53 percent, Royal Dutch Shell plc at 7.31 percent and Total S.A. at 5.65 percent. In a world of negative interest rates, these are tempting yields for the long-term investor—and if oil prices continue to move higher in the future, the current prices will prove to be a steal.

So what are investors to do?

The answer depends somewhat on your investment objective, but generally speaking, any investor buying into the oil majors for their dividend yield should be ready to face disappointment in the near future. Related: It Isn’t Just ISIS that Is Destabilizing Iraq

Italy's Eni reduced its dividend by 30 percent in 2015. Spain's Repsol cut the dividend by 20 percent for 2015, compared to its pay out in the previous three years. ConocoPhillips cut its quarterly dividend from 74 cents to 25 cents, for the first time since 1991, which is proof that the yields might not remain at the current levels going forward.

Even BP has cautioned that paying out dividends is no longer their priority. Experts are divided on the prospects of Shell maintaining its dividend going forward.

Hence, sustaining the dividend yields in the future will depend on the price appreciation in crude from the current levels. If crude oil prices average closer to the EIA forecast, chances are that dividends will take a hit, but if prices appreciate considerably from here, investors will be handsomely rewarded for their risk.

Investors having a strong gut to withstand the volatility in crude oil prices and willing to accept lower dividend yields in the future should buy oil stocks on declines.

By Rakesh Upadhyay for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment





Oilprice - The No. 1 Source for Oil & Energy News