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Occidental Could Just Be the First Oil Company to Cut Dividend

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Occidental Petroleum  (OXY) - Get Occidental Petroleum Corporation Report is cutting its dividend payment in the face of plummeting oil prices.

The stock rose 9.63% to $13.74 a share, as the company is also cutting capital expenditures — appropriately so — as oil demand is rocked by several factors.

Monday, the stock fell by 50%. Oil prices fell by more than 25% Monday.

Dealt a one-two punch, demand relative to supply is plunging. OPEC could not come to an agreement to cut production, while the coronavirus wreaks havoc on people’s and businesses need for oil.

Before Monday, Occidental, which just raised debt for a $38 billion purchase of Anadarko had net debt (debt minus cash) of around 50% of its total enterprise value (market capitalization plus net debt). Now its capital structure is 73% comprised of net debt.

The smaller oil companies, with heavier debt burdens, fell harder than the large companies, which still also have sizable debt burdens. Fewer barrels and lower prices per barrel will put overwhelming pressure on revenue and profit, making the debt of these companies far riskier.

Occidental’s dividend yield stood at 20% on Monday. The company said in a press release it is lowering its quarterly dividend payment to 11 cents per share from 79 cents. The new yield, effective in July and annualized starting at the time, represents a 0.8% yield to the current stock price, as the company needs to now conserve cash.

But with lower demand for oil, Occidental needs to cut capital expenditures to tailor those to demand and protect its free cash flow. The company said it is reducing its planned capital spending to between $3.5 billion and $3.7 billion, from a prior range of between $5.2 billion and $5.4 billion. That’s a major driver of the stock Tuesday.

Monday, Shawn Cruz, trading strategy manager at TD Ameritrade told TheStreet, “There are going to be some dividend cuts.” Occidental followed suit.

Here are two other candidates to cut dividends — small oil companies with heavy debt burdens and juicy dividend yields:

Apache  (APA) - Get APA Corporation Report: 10% dividend yield (stock +4.8% Tuesday)

Halliburton  (HAL) - Get Halliburton Company Report: 8.73% dividend yield (stock +0.55% Tuesday)

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