Many high-yield stocks come with more risks than an average dividend stock. A high-yield stock offers generous payout, but the reward is of little value if the dividend gets cut. There are, however, some stocks that not only offer a high yield, but also are well positioned to grow dividends in the future. I believe oil and gas producer Occidental Petroleum (NYSE:OXY) is one such stock.
Occidental Petroleum is one of the largest independent oil producers which pumps more than 580,000 barrels of oil equivalents per day. Most independents don’t offer a meaningful dividend, but Occidental Petroleum pays $0.76 per share in every quarter, which translates into an annualized dividend of $3.04 per share and yield of ~5%. That’s the highest dividend yield among all large-to-mid-cap independent oil producers and also compares favorably against the 10-year treasury yield of 2.23%, S&P-500 average yield of 1.95% and the basic materials industry’s average yield of 2.32%.
Occidental Petroleum, like any other company operating in the basic materials space, has significant exposure to commodity prices. The movement in oil and gas prices impacts the company’s revenues, earnings and cash flows. But unlike some of the other oil producers, such as Devon Energy (NYSE:DVN) and ConocoPhillips (NYSE:COP), Occidental Petroleum is a conservatively managed company that is known for maintaining strong financial health. This has allowed the company to continue rewarding shareholders with dividends, even in the downturn. By comparison, its peers who were operating under high levels of debt, such as ConocoPhillips, were forced to slash dividends.
At the end of Q1-2017, Occidental Petroleum had $8.33 billion of net debt (total debt minus cash). That’s not big for a company valued at $47 billion. The debt translates into a net debt ratio, which is commonly used to measure leverage, of just 28.3%, which is one of the lowest in the industry. By comparison, its peers Anadarko Petroleum…