What are we looking for?
Sustainable dividends from integrated oil and gas leaders – their shares all the more attractive given falling oil prices.
The screen
Oil prices have plunged lately in the wake of global tariff battles and fears of an economic slowdown.
Unlike pure producers, integrated oils have both upstream (production) and downstream (refining and petrochemicals) operations. The diversity of their operations cuts the risk of oil price volatility. That’s because their upstream businesses gain with higher oil prices, while their downstream operations gain when oil prices drop.
The phenomenon lends stability in periods of falling prices – and cuts their overall risk! It also helps them keep paying high, sustainable dividends, even if their share prices remain depressed.
Our search started with global integrated oil stocks. From there, we singled out those dividend payers with strong production and cash flow forecasts, before applying our TSI Dividend Sustainability Rating System, which awards points based on key factors:
- one point for five years of continuous dividend payments – two points for more than five;
- two points if it has raised the payment in the past five years;
- one point for management’s commitment to dividends;
- one point for operating in non-cyclical industries;
- one point for limited exposure to foreign currency rates and freedom from political interference;
- two points for a strong balance sheet, including manageable debt and adequate cash;
- two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments; and
- one point for being an industry leader
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; four to six points, average sustainability; and one to three points, below average sustainability.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc., the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six stocks: Canadian oil and gas majors Imperial Oil Ltd. IMO-T and rival Suncor Energy Inc. SU-T, both headquartered in Calgary, generate production from oil sands, as well as conventional wells, for sale and to feed their refining operations. (Imperial, in particular, is a long-time recommendation and the subject of an upcoming TSI Inner Circle report.) California-based Chevron Corp. CVX-N and Texas-based Exxon Mobil Corp. XOM-N both continue to use strong cash flow from both their upstream and downstream operations to increase shareholder dividends, as well as share buybacks. Finally, BP PLC BP-N and Shell PLC SHEL-N, both headquartered in London, remain two of the world’s biggest integrated oil and gas producers.
We advise investors to do additional research on investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.