This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Dividend Stock Advisor

3 Oil Companies in Danger of Cutting Dividends

By David Peltier | 02/08/16 - 11:49 AM EST
Stocks in Focus: ENBL, MUR, NGLS

With crude oil trading back below $30 today, the ability for energy companies to sustain sizable dividend yields is wearing thin. In just the first five weeks of 2016, we've already seen payouts cut or eliminated at Carbo Ceramics (CRR:NYSE), ConocoPhillips (COP:NYSE), Diamond Offshore (DO:NYSE), Noble Energy (NBL:NYSE), Rowan (RDC:NYSE), Tidewater (TDW:NYSE), just to name a few.

This begs the question: who's next? We ran some fundamental screens this morning, and the following three names are companies with dividend yields north of 6% that we believe are at risk of being reduced before the end of the year.

Enable Midstream Partners (ENBL:Nasdaq) is a midstream play that focuses on gathering and processing oil and natural gas. The company raised its quarterly distribution as recently as last October, and will make its next payment of $0.318 a share (19.2% yield) on Feb. 12, to investors at the close of trading on Jan. 28. The shares recently changed hands around $6.63.

Management have been borrowing heavily on the company's revolving credit line in order to cover the distribution and Enable's credit rating was cut by Standard & Poors on Feb. 2 to junk status. This will make future financing more expensive for the company, and we believe the current payout is not sustainable.

Murphy Oil (MUR:NYSE) is a mid-cap energy name that has steadily increased its payout over the past several years and currently offers a quarter dividend of $0.35 a share (7.4% yield). Investors at the close of trading on Feb. 10 will qualify for the company's next payment on March 1. The stock recently changed hands around $18.85.

That said, we do not believe that readers should grow complacent about Murphy's dividend. Even though the company has some refining and marketing (downstream) assets that are less leveraged to underlying commodity prices, the consensus analyst estimates call for a loss of $2.60 a share in 2016, following a loss of $3.08 a share last year.

Normally, we like to see a company earn at least twice what it pays out each year in dividends. On the other hand, Murphy is losing twice as much as it is distributing to shareholders. In the meantime, the company has $2.2 billion of debt on its balance sheet and its bonds are teetering on the edge of investment-grade and junk status. If push comes to shove, we believe the dividend, which costs management $241 million a year, could be sacrificed.

Finally, Targa Resource Partners (NGLS:Nasdaq) is a midstream name with an unusually high, 40% exposure to commodity prices. The company boosted its quarterly distribution as recently as last July and will make its latest payment of $0.825 a share (27.3% yield), to investors at the close of trading on Jan. 28. The stock recently changed hands around $12.13.

Targa is currently in the process of merging with its related C-Corp, Targa Resources (TRGP:Nasdaq), which sports an 18.6% dividend yield of its own. Even though the deal was originally expected to be accretive to earnings, both companies have junk-rated bonds and we do not believe the payouts can survive in a lower-for-longer energy price environment.

Regards,

David S. Peltier

LAST DAY for All-Access Pass

One day left to see everything TheStreet has to offer!

02/08/16 - 11:42 AM EST
Don’t Miss Out – Free Open House – Now Open!

Get your FREE all-access pass now.

02/05/16 - 11:30 AM EST

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free

Special Subscription Bundles

Want more than one service?
Sign up to one of our packaged services and take advantage of amazing savings!

Portfolio
Plus
Real Money Pro
Portfolio
Chairman's Club
Action Alerts PLUS checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Stocks Under $10 checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Growth Seeker checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Dividend Stock
Advisor
checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
TheStreet
Quant Ratings
checkmark | Portfolio Plus checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Real Money checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Real Money Pro checkmark | Real Money Pro Portfolio checkmark | Chairman's Club
Trifecta Stocks checkmark | Chairman's Club
Reality Check checkmark | Chairman's Club
Action Alerts
OPTIONS
checkmark | Chairman's Club
Daily Swing Trade checkmark | Chairman's Club
Top Stocks checkmark | Chairman's Club
Quarterly Call
with Jim Cramer and
Jack Mohr
checkmark | Chairman's Club
Started Now Started Now Started Now

Markets

Chart of I:DJI
DOW 16,027.05 -177.92 -1.10%
S&P 500 1,853.44 -26.61 -1.42%
NASDAQ 4,283.7530 -79.3910 -1.82%

Dividend Stock Advisor Holdings