The board of directors of Cabot Oil & Gas Corporation COG recently approved a 20% hike in its regular quarterly dividend. The company will now reward shareholders with a dividend of 6 cents per share compared with the previous payout of 5 cents. This translates to a dividend of 24 cents per share on an annualized basis.
The increased dividend will be paid to shareholders of record on Feb 7, 2018, as of Jan 24, 2018. The company's dividend hike for the second consecutive year reflects its commitment to create value for its shareholders and underlines its confidence in generating cash. We will like to remind investors that the company’s second-quarter 2017 dividend reflected a 150% quarterly increase.
Given a solid capital and liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.
Cabot has recently shifted its focus on strengthening its balance sheet. On Dec 20, 2017, the company announced its decision to divest Eagle Ford Shale holdings to a unit of Venado Oil & Gas LLC for $765 million. This will help the company to concentrate on high quality Marcellus Shale assets and achieve better returns.
About the Company
Cabot, based in Houston, TX, is an independent oil and gas exploration company with producing properties mainly in continental United States. Cabot focuses on high-impact natural gas-focused drilling in the Marcellus Shale and supplements it with Eagle Ford-based liquids program in Texas. At the end of 2016, the company had 8.6 trillion cubic feet equivalent (Tcfe) in proved reserves (97% natural gas). Cabot’s output totaled 627.1 billion cubic feet equivalent (Bcfe) 2016, of which nearly 96% was natural gas.
Driven by its operational efficiencies, Cabot was able to reduce its unit operating costs by around 19% since the beginning of 2017 — an impressive achievement amid the low price scenario. The company has managed to generate positive free cash flow for the sixth consecutive quarter and is likely to sustain the same in the near-to-medium term.
Also, Cabot displays strong financial leverage. Its debt/equity ratio of 48.6% compares favorably with the industry average of 96.3%, indicating a lower debt burden relative to the industry. The company’s ROE of 7.2% is much higher than the industry average of 1.5%. This reflects that it is more efficient in utilizing shareholder funds compared to its peers. Moreover, Cabot has gained 28.2% in the last year against 14.7% fall of its industry.
However, there are some risks associated with investing in the stock. Being a relatively small player, Cabot lacks the financial resources of larger industry giants. As such, during the current prolonged credit crunch, the company is forced to spend within its internal cash generation. This may prove detrimental to its growth plans. Additionally, grappling with lawsuits and denied a water permit, we expect Cabot’s new pipeline initiative – the Constitution Pipeline Company – to be delayed substantially or get cancelled.
Zacks Rank and Stocks to Consider
Cabot has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the oil and energy sector like Northern Oil and Gas, Inc. NOG Bonanza Creek Energy, Inc. BCEI and Delek US Holdings, Inc. DK. All these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Minnetonka, MN-based Northern Oil and Gas is an independent energy company. Its sales for the fourth quarter of 2017 are expected to grow 54.5% year over year. The company pulled off an average positive earnings surprise of 175% in the last four quarters.
Bonanza Creek Energy, based in Denver, CO, is an exploration and production company. Its earnings for 2017 are expected to increase 100.6% year over year. The company delivered a positive earnings surprise of 252.6% in the third quarter of 2017.
Brentwood, TN-based Delek is an integrated energy company. Its sales for 2017 are expected to increase 44.7% year over year. The company delivered a positive earnings surprise of 19.1% in the third quarter of 2017.
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