Dividends Remain Intact
One of the biggest questions surrounding the oil majors during this brutal period of falling oil prices is whether they could sustain their dividends. As their stock prices fall, their dividend yields increase, which is typically a sign that the market believes a dividend cut is in the future.
BP and ConocoPhillips currently yield 6.7% and 5.5%, respectively. With revenue and earnings seemingly in a free fall, their high dividend yields are an added burden. Fortunately for investors, both ConocoPhillips and BP declared their most recent dividend payments after reporting quarterly results.
The reason BP and ConocoPhillips are so unwilling to cut their dividends is because investors typically respond by selling the stock of a company that cuts its dividend. It is not uncommon to see a company lose as much, or more, in market value after cutting a dividend, than the company saves by reducing its payout.
Oil investors take dividends very seriously, and management teams know this. That is why BP and ConocoPhillips have taken every step available, including massive spending cuts and asset sales, to continue paying their dividends.
As a result, while growth investors may not view the oil patch very positively in light of falling revenue and earnings, income investors can continue to have confidence in these stocks, for now.
DISCLOSURE: Bob Ciura personally owns shares of BP PLC (NYSE:BP).
This article is brought to you courtesy of Bob Ciura from Wyatt Research.