Seventh Pick in the WMD Portfolio - Occidental Petroleum

The more real they are, the more fun blogs are to follow. So in that spirit, rather than talking about ideas in the abstract I maintain a hypothetical portfolio to track ideas where I'll semi-regularly (and hypothetically) invest and track buying (and where required selling) shares.

For tracking purposes I will use $1,000 to keep it nice and simple. The overall goal is long run income and dividend growth. Portfolio page with goals and tracking is here.

The previous pick in the WMD Portfolio was Spectra Energy. I am taking further advantage of falling energy prices with Occidental Petroleum. I have no idea if this is the bottom and it probably isn't. For all I know oil prices could go much lower and stay low for years.

But we have to balance the positives. Oxy has simplified its business model. At the end of November Oxy spun off its California assets into a separate company (California Resources). Oxy also plans to sell off its Middle East/ North Africa assets. Those transactions will leave Oxy as a focused player in the Permian basin.

Since, I have no idea what oil prices will do, Balance Sheet safety is paramount. Levered players are already starting to get washed out. Oxy has a Debt/Equity ratio of 0.2 they can weather low prices.

During the financial crisis, Oxy continued to raise its dividend. In 2004, Oxy paid $0.55/share in dividends and today its $2.80/share. That is excellent dividend growth. The current yield is 3.5%.

Oxy is a very shareholder friendly company. They have steadily brought down the share count. Management plans a major buy back which could result in retiring almost 10% of its shares. Since Oxy is trading at its lowest P/E valuation since 2008 this should be an excellent time to shrink the share count.

All in all, even with the vast uncertainty around oil markets, Oxy's simpler business model, safe balance sheet, and shareholder friendly actions make it a good addition to the WMD portfolio.