The world’s fifth largest refiner ConocoPhillips (COP) delivered a powerful third quarter with earnings doubling to $3.1bn and an $8bn cash pile which will be reassuring to dividend investors.
The company was boosted by the sale of $6bn worth of shares in Russian oil producer LUKOIL.
For those who invest for dividends, there were some encouraging words from management.
"We had a good quarter and operated as expected," said Jim Mulva, chairman and chief executive officer. "Our plans to improve returns through disciplined capital spending, reducing debt and repurchasing shares are on track. Considerable free cash flow should enable us to execute our capital program to organically convert resources to reserves and annually increase dividends while repurchasing shares."
In the quarter ConocoPhillips spent $900m repurchasing shares leaving the company trading on a dividend yield of 3.6% and a price to earnings multiple of 10 times earnings.
Over the next several years, production declines are expected to be mitigated by new production from major projects offshore southeast Asia, LNG projects in Qatar and Australia, Canadian SAGD oil sands projects and Lower 48 shale developments.
For the first nine months of 2010 the earnings for the group were $6.9bn, compared with $3.1bn in the corresponding period of 2009.
The company was highly cash generative in the third quarter delivering $10.6bn in cash. $4.3 billion of this cash came from operations and $6.3bn from asset disposals. $2.7bn in debt was paid down leaving the company with total debt of around $23.6bn.
With another 50 million LUKOIL shares expected to be sold before the end of 2011, all indications that a significant amount of the debt pile will be paid down by the end of the next financial year.
ConocoPhillips (COP) has a good track record of returning cash to shareholders. Since a 2 for 1 stock split in 2005, the company has increased dividends every year. Prior to the stock split the company had similarly been focusing on increasing its return to shareholders.
Apart from the handy dividend yield, shareholders have done well over the last year. The stock has risen from $49 a year ago to trade around $60, making it one of the better performing shares in the sector.
With the debt burden being lowered and management running a tight and efficient ship at ConocoPhillips (COP), with the company also indicating that excess cash would be returned to shareholders, there is much dividend seeking conservative investors can look forward to.
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