Can Occidental Sustain and Increase its Dividend Amid Energy Cycles?

Globe and Mail

03-07-2025

Occidental Petroleum Corporation OXY, an upstream oil and gas producer with integrated midstream and chemical operations, has made notable progress in strengthening its balance sheet and shareholder returns since the 2019 Anadarko acquisition. The company lowered debt by $6.8 billion in the past 10 months, which lowered its annual interest expenses by $370 million, boosting net income. The ongoing deleveraging effort has positioned it well to focus on increasing shareholder value, including dividends.
Occidental's strong free cash flow is underpinned by its low-cost, high-margin operations in the Permian Basin, complemented by steady contributions from international assets. This solid operational performance supports the company's dual focus on reducing debt and enhancing shareholder returns. In 2024, Occidental increased its dividend by 22%, underscoring management's commitment to delivering sustainable and disciplined capital returns.
The company's diversified asset base, including its OxyChem segment and carbon capture ventures, adds resilience and optionality to earnings. These segments provide non-cyclical cash flows and position Occidental as a potential long-term energy transition player. Occidental's capital allocation strategy prioritizes returning excess free cash to its shareholders, with dividends forming a core component alongside buybacks.
The company's enhanced financial position, operational efficiency and broad-based cash flow streams provide a strong foundation for maintaining and gradually increasing its dividend over time. Although exposure to commodity price fluctuations introduces an element of risk, Occidental's strategic discipline and capital prudence reinforce the credibility of its dividend growth outlook and offer investors confidence in the sustainability of the dividend policy.
How Oil & Gas Companies Are Raising Shareholders' Value?
Oil and gas companies are enhancing shareholder value by consistently paying dividends, supported by strong cash flows and disciplined capital spending. These regular payouts reflect financial stability.
Some leading upstream oil and gas companies are ConocoPhillips COP and EOG Resources EOG, which are raising shareholder value through regular dividend payments.
ConocoPhillips returned a total of $9.1 billion to shareholders in 2024, including $5.5 billion through share repurchases and $3.6 billion through dividends.
EOG Resources has a track record of stable and growing dividends spanning 27 years. EOG has never suspended or lowered its dividend, even during business turmoil, reflecting a solid underlying business.
OXY Stock's Earnings Surprise History
The stable performance of the company allowed its earnings to beat estimates in each of the last four reported quarters, the average surprise being 24.34%.
Occidental's ROIC Lower Than the Industry
Occidental's return on invested capital ("ROIC") is lower than the industry average in the trailing 12 months. ROIC of OXY was 6.26% compared with the industry average of 6.61%.
OXY's Price Performance
Occidental's shares have gained 8.4% in the last three months compared with the Zacks Oil and Gas-Integrated-United States industry's rise of 8%.
Price Performance (Three months)
OXY's Zacks Rank
Occidental currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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ConocoPhillips (COP): Free Stock Analysis Report
Occidental Petroleum Corporation (OXY): Free Stock Analysis Report
EOG Resources, Inc. (EOG): Free Stock Analysis Report