Marathon Oil's (NYSE:MRO) Shareholders Will Receive A Bigger Dividend Than Last Year

Marathon Oil Corporation (NYSE:MRO) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of June to $0.10. Even though the dividend went up, the yield is still quite low at only 1.8%.

See our latest analysis for Marathon Oil

Marathon Oil's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Marathon Oil was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 12.2% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 10%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $0.68 in 2013 to the most recent total annual payment of $0.40. This works out to be a decline of approximately 5.2% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Marathon Oil has seen EPS rising for the last five years, at 44% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Marathon Oil Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Marathon Oil is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Marathon Oil you should be aware of, and 1 of them can't be ignored. Is Marathon Oil not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.