Are Big Oil dividends safe with lower priced oil?

[Car-Guy]

I've bought and sold many of the big named oil/gas stocks many times over the years. (more for short term appreciation than for their dividends) However, as I'm sure you are aware, they do come with some unique industry risks so I've always spread my bets. Lot's of high risks activities in the oil industry, not the least of which is the boiling of oil.

 

[Mulligan]

A follow up. I am committing only 10k to this "fun money". So to humor myself I split it up into two 5k purchases. I bought the first chunk in Suncor. Has a 3% plus dividend and low payout ratio. Cost per barrel produced is mid 30s. Hopefully oil will drop some more so I can buy the other 5k. If nothing else, I was a winner for a day anyways as it jumped 50 cents from the low I bought it on today.


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[Car-Guy]

A follow up. I am committing only 10k to this "fun money". So to humor myself I split it up into two 5k purchases. I bought the first chunk in Suncor. Has a 3% plus dividend and low payout ratio. Cost per barrel produced is mid 30s. Hopefully oil will drop some more so I can buy the other 5k. If nothing else, I was a winner for a day anyways as it jumped 50 cents from the low I bought it on today.


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Many oil stocks sure took it on the chin today. Some were even kicked while they were down. I'm wondering if it's time to use some of my fun/gambling money in this sector again....

 

[Mulligan]

Many oil stocks sure took it on the chin today. Some were even kicked while they were down. I'm wondering if it's time to use some of my fun/gambling money in this sector again....

I'm still sitting on my other half. I bought Suncor a few weeks ago in the 32's and it jumped over 35 and now back in 31 range, dropping almost 10% this week. If it will drop 10% more, I will just dump my other half on it. They can extract a lot of oil without having to ramp up exploration costs to get it as they are already sitting on decades of that tar sand.


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[Car-Guy]

Well, I did acquire some big oil stocks earlier this week and I may buy some more before the end of the year.

 

[Fermion]

They say oil is going to $50 a barrel. The same people who said gold was going to tank and it did. I tend to believe them.

Exxon said they were ok with $40 oil but other companies? Not sure...

 

[Car-Guy]

They say oil is going to $50 a barrel. The same people who said gold was going to tank and it did. I tend to believe them.

Exxon said they were ok with $40 oil but other companies? Not sure...

I saw that interview (on CNBC I think) I don't mind holding oil stocks for a while, if needed.

 

[meierlde]

They say oil is going to $50 a barrel. The same people who said gold was going to tank and it did. I tend to believe them.

Exxon said they were ok with $40 oil but other companies? Not sure...

Note that the dividends were safe when oil was at this price in 2009 for the supermajors. They have the advantage of having kept the downstream operations, which do well in an environment of low crude prices. Before the dividends are cut expect the buybacks to cease also.

 

[Mulligan]

They say oil is going to $50 a barrel. The same people who said gold was going to tank and it did. I tend to believe them.

Exxon said they were ok with $40 oil but other companies? Not sure...

Mr. Market just isn't going to ever allow Exxon to go on sale. Oil down 40% from peak and XOM down 10%. I know they are a big gas play now too, but still I was hoping for a chance to buy low that isn't going to happen at least for a while.


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[aaronc879]

They say oil is going to $50 a barrel. The same people who said gold was going to tank and it did. I tend to believe them.

Exxon said they were ok with $40 oil but other companies? Not sure...

Chevron also said they're good down to $40 so I think they are both still worthy of holding and if the prices continue to fall then i'll be buying more soon.

 

[Fermion]

The oil services industry is the one that has really taken a hit. King Hal plus all of the deep water drillers (Seadrill, with the newest drillships has gone from $30 to $12).

The market expects oil to drop a lot more or stay low for awhile. I was looking at HAL but feel there is no rush.

 

[aja8888]

The oil services industry is the one that has really taken a hit. King Hal plus all of the deep water drillers (Seadrill, with the newest drillships has gone from $30 to $12).

The market expects oil to drop a lot more or stay low for awhile. I was looking at HAL but feel there is no rush.

Transocean (RIG) was under $20 recently. That makes the yeild over 10%. Expect dividend cuts from services companies.

 

[audreyh1]

There is another fallout to the oil price drop - stress is starting to show up in high yield bond funds and bank loan funds. A lot of low quality debt was issued to help fund all that recent furious "new" US oil extraction, and bond fund managers are starting to dump that paper.

I'm a little concerned this might have wider repercussions in credit markets in general. Might be a faint echo of 2007/8. No where on the same scale, but the same class of event.

Of the things I see on the horizon for financial markets, this is the most disconcerting. Otherwise the economy and employment continue to improve while inflation remains extremely tame.

 

[dallas27]

All the players in this are just posturing and trying to throw their weight around. In time, the weak will be eaten, the strong who are left will realize collusion is in their best interest, not a price war, and prices will go to a place that provides a nice profit for the survivors by restricting supply.

Opec may look much different, or even break up. But collusion will be the best strategy for all.

The losers will be all those blue collars that jumped into the drilling and pipeline business the last few years (and spent their six figures). The industry will evaporate at the new equilibrium.



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[Fermion]

Transocean (RIG) was under $20 recently. That makes the yeild over 10%. Expect dividend cuts from services companies.

Yep. Seadrill went from a 20% dividend ($4 per year at $20 share price) to recently saying they are eliminating the dividend. The price dropped to $12 per share (which at the previous $4 dividend would be a ridiculous 33% dividend payout.

If oil goes right back up these companies are going to be a steal. Seadrill would bring back the dividend fairly promptly if we were to get $90 oil.

On the flipside, more than a few of the service companies could go bankrupt at $40 oil for an extended period.

 

[jfn111]

Transocean (RIG) was under $20 recently. That makes the yeild over 10%. Expect dividend cuts from services companies.

The current dividend is 16%. I would love to buy but I don't believe the dividend will stay.

 

[Snidely Whiplash]

If oil goes right back up these companies are going to be a steal. Seadrill would bring back the dividend fairly promptly if we were to get $90 oil.

I think that ship has sailed. I am neck deep in shares of SeaDrill. Bought when it looked like a "good" deal, bought a bunch more when it looked like a "great" deal, and am now way overweight..... And way underwater. I thought the dividend would get cut, not suspended, and said suspension tells me they see some serious trouble in the credit market. Even if oil went up now I think they have found religion and plan to operate a good bit more conservatively ie. paying down a big part of their debt.

But noone will be happier than me if I am wrong and you are right Fermion.

 

[Fermion]

I think that ship has sailed. I am neck deep in shares of SeaDrill. Bought when it looked like a "good" deal, bought a bunch more when it looked like a "great" deal, and am now way overweight..... And way underwater. I thought the dividend would get cut, not suspended, and said suspension tells me they see some serious trouble in the credit market. Even if oil went up now I think they have found religion and plan to operate a good bit more conservatively ie. paying down a big part of their debt.

But noone will be happier than me if I am wrong and you are right Fermion.

I think you will be ok long term. Fredrickson just bought another few million shares didn't he? I don't worry much when a major owner buys big on a possibly oversold stock.

They say the market prices things correctly. Seadrill was trading at $21 with $75 oil and now trades at $12 with $65 oil. They still have the same contracts they did a month ago, the same debt, but now they have extra cash to weather bad times because of the dividend elimination.

Of course there is the example of Frontline....which is why I am on the sidelines

 

[haloFIRE]

I'm with you Snidely. Thought I was buying low about 6 months ago. Good news is I'm ankle deep vice neck deep.


Also ankle deep on BBEP, VNR, and LINE. Have had all for over two years.


Am also a new owner of KMI (vice KMP {over 10 years} and EPB) - am thinking that KMI is a different type of animal


Planning to hold all long despite recent significant drops


Enjoying the ride...

 

[Snidely Whiplash]

Of course there is the example of Frontline....which is why I am on the sidelines

Your post is exactly right. But you didn't have to mention that F word.

Planning to hold all long despite recent significant drops

I'm with you. I'll be in for the long haul. I can't imagine selling at these prices, but I have so much now I'm not entirely comfortable buying more. My cost basis in SDRL is around $25. I diversified a bit into NE, LINE, and AWLCF, but those are much smaller positions.

Enjoying the ride...

I would enjoy it significantly more if the ride were in the other direction.

Hopefully in a couple of months all of us SDRL investors look like genius', but I worry it will be a good bit longer.

 

[Car-Guy]

Mr. Market just isn't going to ever allow Exxon to go on sale. Oil down 40% from peak and XOM down 10%. I know they are a big gas play now too, but still I was hoping for a chance to buy low that isn't going to happen at least for a while.


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I'm not sure what is low (sure wish I did know ) but with today's big drop, I just acquired another good size chunk.

 

[Mulligan]

I'm not sure what is low (sure wish I did know ) but with today's big drop, I just acquired another good size chunk.

What concerns me about Exxon not being "on sale" is you could have bought it in February for under $90 with oil near $100. Now oil is in the $60s and you can buy Exxon at $88 and change. That doesn't make sense to me. I waded in a bit too early with Suncor buying it at $32 but I will buy more if it starts to sniff $25.


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[Car-Guy]

What concerns me about Exxon not being "on sale" is you could have bought it in February for under $90 with oil near $100. Now oil is in the $60s and you can buy Exxon at $88 and change. That doesn't make sense to me. I waded in a bit too early with Suncor buying it at $32 but I will buy more if it starts to sniff $25.


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I've spread my bets and I'm not all in. Wait a minute, were talking about "playing" stocks and not poker. That's what happens when you buy stocks with your gambling money.

 

[Senator]

I got rid of XOM a few days ago. I owned it since 2010 in a Roth. It returned ~3% dividend, and went up 5% by the time I sold.

The IVW was much better. I went back to that.

 

[Mulligan]

I've spread my bets and I'm not all in. Wait a minute, were talking about "playing" stocks and not poker. That's what happens when you buy stocks with your gambling money.

That's basically what I want to do in oil as this is not my meal money either. My simplistic thinking is this... We are not talking about trying to make money off Betamax machines. Oil is needed and will be needed. The cure for low oil prices is even lower prices. This in turn may smoke out some of the green companies, also helping oil. I will buy more soon, wanting a bit more of a dip, and then wait it out. I got nothing but time. I can wait decades for this to pay off!


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