Proceed With Caution When Considering This Ultra-Popular Energy Stock
Oil prices have been bouncing around quite a bit of late, but they remain at a fairly high level. That's good news for energy producers like ConocoPhillips (NYSE: COP), where the top and bottom lines are tied directly to oil and natural gas prices. Investors are benefiting, too, from this company's huge dividend, which includes a performance-based "variable return of cash" component. Before you line up to buy the stock, however, make sure you understand just how ConocoPhillips sets its dividend.
ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) have distinguished themselves in the energy sector by providing investors with regular annual dividend increases. Both are Dividend Aristocrats at this point, with hikes in both good and bad markets alike. Notably, they both have modest leverage and use their balance sheets to support their dividends and capital investment plans during the inevitable lean years in the highly cyclical energy sector. Dividend consistency through turbulence is a key selling point for these stocks.
ConocoPhillips is close to the polar opposite of this approach. It isn't that ConocoPhillips is over-leveraged -- its debt-to-equity ratio of 0.38 times is only slightly higher than Exxon's 0.28 times and Chevron's 0.2 times. And well below a heavily leveraged industry name like BP (NYSE: BP), which sits at 0.95 times on this metric. The difference is the way ConocoPhillips views its dividend.
Source Fool.com
