Murphy Oil Corporation (NYSE:MUR) has announced that it will pay a dividend of US$0.13 per share on the 1st of December. This payment means the dividend yield will be 1.7%, which is below the average for the industry.
See our latest analysis for Murphy Oil
Murphy Oil Might Find It Hard To Continue The Dividend
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Even though Murphy Oil isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.
Recent, EPS has fallen by 4.8%, so this could continue over the next year. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.
Dividend Volatility
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was US$1.10, compared to the most recent full-year payment of US$0.50. This works out to be a decline of approximately 7.6% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. In the last five years, Murphy Oil's earnings per share has shrunk at approximately 4.8% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Murphy Oil that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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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.
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About NYSE:MUR
Murphy Oil
Operates as an oil and gas exploration and production company in the United States, Canada, and internationally.
Undervalued with adequate balance sheet.
