Black Gold


There are 2 things you can count on, death and taxes. If we had to expand it to a third thing, it would be that Americans and the rest of the world are going to keep using Oil for the foreseeable future. Today, we’ll be looking at ConocoPhillips (COP). When it comes to natural gas and crude oil, ConocoPhillips does it all from searching to production and marketing.

One thing that drew me to COP is the low current P/E Ratio of 10.8, well below the 20 I usually aim for. Before we get too excited though, their PEG Ratio (which is based on projected growth) sits somewhere between 1.72 and 2.23 (depending on your source), which may still point to the stock being overvalued at the current price. I usually won’t raise an eyebrow for the PEG Ratio unless it’s over 2 since it’s being based on speculation.

What’s most important to me is the dividend. The current yield is about 3.9%, which is pretty nice. They have increased dividend distributions for the past 12 years, and dividend growth over the past 10 years has averaged over 17% per year. Last year’s dividend raise was significantly lower at 4.5%. The payout ratio is 48% based on last year’s EPS of 5.7 and the current quarterly dividend of $0.69. With this conservative calculation, there is still plenty of room to increase the dividend payment each year.

If you invested $1000 in this stock 10 years ago and reinvested all dividends, you would now have about 72.82 shares worth $5072.28 paying out $198.80 in dividends each year.

I’ll continue to analyze stocks on my watch list before making my first purchase in April.

In other news, my wife and I are looking to potentially buy a house later this year, which means the stock purchases I report in this blog will probably only be held for a short time. I intend to rebuild the portfolio after the down payment, but this will affect my strategy for this year. As such, a high yield stock like COP may be a good fit for this time frame. I have my individual account as well, so when the time comes, I will probably only sell the companies that are overvalued at the time of selling.

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