Company Description: Occidental Petroleum Corporation is one of the largest oil and gas companies in the U.S., OXY has global exploration and production operations. Its subsidiary, OxyChem, is one of the largest U.S. merchant marketers of chlorine and caustic soda.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
OXY is trading at a discount to only 1.) above. When also considering the NPV MMA Differential, the stock is trading at a 64.5% premium to its calculated fair value of $45.77. OXY did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
OXY earned one Star in this section for 2.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1975 and has increased its dividend payments for 14 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $624 is below the $2,100 target I look for in a stock that has increased dividends as long as OXY has. The stock's current yield of 3.99% exceeds the 2.19% estimated 20-year average MMA rate.
Peers: The company's peer group includes: E. I. du Pont de Nemours and Company (DD) with a 2.2% yield, Exxon Mobil Corporation (XOM) with a 3.3% yield and Royal Dutch Shell plc (RDS.A) with a 7.3% yield.
Conclusion: OXY did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks OXY as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $43.41 before OXY's NPV MMA Differential increased to the $2,100 minimum that I look for in a stock with 14 years of consecutive dividend increases. At that price the stock would yield 6.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,100 NPV MMA Differential, the calculated rate is 6.6%. This dividend growth rate is the same as the 1.0% used in this analysis, thus providing no margin of safety. OXY has a risk rating of 2.0 which classifies it as a Medium risk stock.
OXY possesses a large and geographically diverse reserve base. The company built its business around finding and acquiring proven properties to drive its future production growth. The company's Free Cash Flow Payout is at -207 (down from 1115%), this is unsustainable for the long-term. However, its debt to total capital is at an enviable 24% (up from 17%). The stock is trading at a premium to my $45.77 calculated fair value. As such, the stock is not currently a candidate for any of my income portfolios.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in OXY (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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Tags: OXY, DD, XOM, RDS.A
