If you are looking for value as dividend investor in the Oil & Gas Exploration & Production industry, consider Murphy Oil Corp. (MUR, Financial), a Dorado, Arkansas-headquartered petroleum and natural gas production and exploration company.
The U.S. global operator has been distributing dividends since 1983. It currently distributes a 25 cents cash quarterly dividend per ordinary share, with a forward dividend yield of 4.27% according to the stock price at close on Friday. The forward dividend yield of Murphy Oil is interesting because it is higher than the industry average of 3.52% and the S&P 500 index of 2.17%.Â
Though it declined 2.5% every year over the last five years, the dividend per share is still showing a positive trend computed over the entire payment history.
The company will continue to support the dividend with an expected annual sales turnover of $3.41 billion in full 2019 and nearly $1 billion worth of liquidity available in cash and equivalents as of Sep. 30. If Murphy does not change the entity of the distribution, the cash on hand alone is enough to guarantee the payment for more than five years.
The payment will not notch the liquidity available in cash on hand. This is because the operating cash flow is 7.5 times the dividend. For the last 12 months of operations through the third quarter of 2018, Murphy paid dividends of about $173 million out of a total cash flow of $1.31 billion.
Murphy’s operations are such that they can generate much more than the company needs to pay dividends and fund growth, even in the presence of a low oil price environment. For example, in 2016 when Crude Oil WTI Futures bottomed at $43.41 average price per barrel, the operating cash flow surpassed the dividend by nearly 6x.
Crude Oil WTI Futures - Feb 19 (CLG9) are on track to average above $65.25 per barrel in 2018 and above $60.30 per barrel in the fourth quarter of 2018, reflecting 50% growth from 2016 price levels.
Murphy Oil is going to take advantage of this by raising fourth-quarter and full-year 2018 production guidance. Following the closing of the $795 million deal with Petróleo Brasileiro S.A. - Petrobras (PBR) on Dec. 3 to create a Gulf of Mexico joint venture, Murphy Oil Corp. is now predicting a higher output. The company targets production of 176,000 barrels of oil equivalent per day in the last trimester of 2018, up nearly 8% from previous guidance, and 171,000 barrels of oil equivalent per day in full-year 2018.
Murphy Oil Corp. will own an 80% stake in the joint venture, while Petróleo Brasileiro S.A. - Petrobras will own 20%.
Murphy Oil Corp. will invest a portion of the cash flow generated from the strategic partnership with Petrobras to accelerate activity in the Eagle Ford Shale asset to generate additional profitable oil-weighted production already in 2019. In order to reach the target, the company has already increased the amount of capital expenditures for 2018 by 26% to $1.23 billion.
Considering these catalysts, Wall Street has issued a price target of $34.5 per share, reflecting a 47% increase from the share price at close Friday.
The stock price is the result of a 27% decline for the 52 weeks through Dec. 21 and is now abundantly below the 200-, 100- and 50-day simple moving average lines. The 52-week range is $23.09 to $36.53.
The price-book ratio is 0.85 versus an industry median of 1.3 and the EV-Ebitda ratio is 4.12 compared to an industry median of 7.99. The stock has a market capitalization of $4.05 billion.
Besides operations in the Gulf of Mexico and the Eagle Ford Shale area of South Texas, the operator engages in crude oil and natural gas exploration and production activities in Western Canada and offshore Eastern Canada as well.
From North American operations, Murphy Oil Corp made 66,000 barrels of oil per day and 271 million cubic feet of gas per day in 2017.
In North America, the operator has total proved reserves amounting to 322 million barrels of oil and 1,435 billion cubic feet of gas.
Murphy Oil Corp. is also engaged in mineral exploration activities in Mexico, Brazil, Southeast Asia and Australia.
Disclosure: I have no positions in any security mentioned.
