Source: http://www.thestreet.com/story/13426949/2/3-oil-companies-likely-to-cut-dividends-as-crude-prices-continue-freefall.html
ConocoPhillips (COP - Get Report)
With share prices plunging over 50% since July 2014, Conoco Phillps' story is not very different from BP. The company's current dividend yield stands at a lofty 7.2%
For a decade now, Conoco has been steadily increasing its dividend payments, putting it in a class of dividend stalwarts. Even in tough times, it has been known to be a company that only freezes its dividends.
However, that was most likely the case because Conoco had its refining arm Phillips 66 to fall back on when oil prices faltered. Post the 2012 divestment of the division, Conoco has largely been rendered an upstream company, at the mercy of oil price movement.
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With oil prices driven to the ground these days, Conoco, with its share price at a five-year low, is at a loss of 83 cents a share and has paid $2.94 per share in dividends in the last 12 months.
Since income from operations aren't an option, Conoco would need to borrow about $4.5 billion to make up for these losses and create a pool in which it can dip into for the $3.6 billion of annual dividend payments.
However, debt means interest payments which will again need to be paid from Conoco's cash balance. Currently $25 billion in debt, the company has a much higher debt/equity ratio than its peers Exxon, Chevron, and Royal Dutch Shell. With decreasing cash balance and operating losses for four quarters in a row (reaching $2 billion in the September quarter), the funds for dividend payment are likely to diminish. Unlike other reliable income generators available today, COP is poised to disappoint yield-hungry investors.
Conoco might be on the right track with its divestments and spending cuts on capital expenditures, but a dividend cut seems warranted and likely to bail it out of the current sticky environment.