The oil market downturn over the past few years has taken a bite out of oil-fueled dividends, with many companies opting to reduce their payouts to conserve cash. However, not all oil stock dividends followed crude's price descent. In fact, several companies surprisingly managed to increase their distributions amid the turmoil, including Canadian Natural Resources (NYSE: CNQ), Suncor Energy (NYSE: SU), and Occidental Petroleum (NYSE: OXY). With that in mind, income-seeking investors might want to look at them more closely.
Hitting the gas on dividend growth
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Canadian Natural Resources started paying a dividend to its investors in 2001, and the company has increased its distribution each year since. While the rate of dividend increases slowed down during the oil market downturn, Canadian Natural Resources has reaccelerated in the last two years, boosting the payout 10% in 2017 and recently announcing a nearly 22% increase for 2018. With that latest raise, shares of the Canadian oil and natural gas giant now yield 3.4%, which is well above the 1.9% average of stocks in the S&P 500.
Powering Canadian Natural Resources' recent reacceleration has been its transition to a more stable production base due to the expansion of its Horizon oil sands facility and the acquisition of a large stake in another oil sands joint venture. These new additions put the company on pace to increase its cash flow by a 13% compound annual growth rate through 2021 at current oil and gas prices, suggesting that Canadian Natural Resources should have the capability to continue raising its payout for the next several years.
Oil (sands)-fueled dividend growth
Suncor Energy has been paying a dividend since 1992, and at a higher annualized rate in each of the last 16 years. As in the case of Canadian Natural Resources, Suncor's dividend growth rate slowed considerably during the oil market downturn but sped back up in the last two years, rising 10% in 2017 and 12.5% this year. With that latest increase, Suncor also yields 3.4%.
That payout, likewise, should continue heading higher over the next few years. That's because the leading oil sands producer recently put the finishing touches on its latest facility, Fort Hills, which puts it on pace to deliver 9% compound annual production growth per share through 2020. That steadily rising output should drive cash flow higher even if oil prices don't budge, likely giving Suncor Energy the means to continue increasing its payout each year.
A high yield from the oil patch
Occidental Petroleum has been paying dividends since the 1970s. However, the company put an even greater priority on that payout about 15 years ago and has increased it every year since then, boosting it more than 500% over that period. With its latest raise, Occidental's dividend yields an attractive 4.7%.
While Occidental has delivered high-rate dividend growth in the past, it has only given meager increases over the last few years, including a 1.3% raise last year. However, Occidental is working to reposition its business so it can generate enough cash flow at $50 oil to finance the capital needed to increase production at a 5% to 8% annual pace and to sustain a growing dividend. The company has made excellent progress on that plan and expects to hit its target by the third quarter. Once it does, Occidental could reaccelerate its dividend growth rate, potentially matching it with the production pace.
Full speed ahead
This trio of oil stocks have managed to increase their dividends through both good times and bad. Now, with the good times in the oil patch starting to roll again, these payouts appear likely to head even higher over the next few years. That income upside is why dividend seekers might want to consider adding one of these oil-backed dividends to their portfolios.
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