Energy company ConocoPhillips (COP) will start paying quarterly variable dividends to shareholders on top of its regular quarterly dividend of currently $0.46 per share. COP announced several updates that highlight the company’s differentiated value proposition. This announcement follows the recent closing of the company’s acquisition of Shell’s Permian Basin properties on December 1 for net cash of $8.6 billion.
Conoco announced its expected 2022 returns of capital program and the initiation of a three-tier returns of capital framework. The three-tier framework is structured to continue delivering a compelling, growing ordinary dividend and through-cycle share repurchases, now with the addition of a variable return of cash (VROC) tier. The VROC tier will provide another flexible tool for meeting the company’s commitment of returning greater than 30% of CFO during periods when commodity prices are meaningfully higher than the company’s planning price range.
The VROC will be determined and approved each quarter by the board of directors at the same time the ordinary dividend is reviewed. The factors considered in determining the VROC will include the anticipated level of distributions required to meet the company’s capital returns commitment, forward prices, balance sheet cash and total yield. The VROC will be announced at the same time as the ordinary dividend, but the quarterly payout will be staggered from the ordinary dividend payout, resulting in up to eight cash distributions to shareholders throughout the year.
As the company considers the business outlook, including forward commodity prices, it has set its expected 2022 capital returns to shareholders at ~$7 billion. This would represent a ~16% increase in returns of capital versus 2021 and is expected to be allocated roughly equally between cash and share repurchases across the three distribution tiers as follows:
- The annualized current ordinary dividend, estimated at ~$2.4 billion subject to board review and approval
- Expected share repurchases of approximately $3.5 billion, including approximately $1 billion funded through remaining Cenovus share sales
- A VROC of approximately $1 billion subject to board review and approval, anticipated to be distributed ratably on a quarterly basis
The regular annual ConocoPhillips dividend of $1.84 per share currently yields 2.5% at a stock price of almost $74.