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Why Has Marathon Oil Curtailed Its Dividend?

Nicholas Chapman - Author
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Nov. 20 2020, Updated 1:44 p.m. ET

Marathon Oil’s dividends

Marathon Oil (MRO) paid its last dividend on September 12, 2016, issuing a dividend of $0.05 per share on its common stock for 2Q16. In the trailing-12-month period, Marathon Oil has paid a total dividend of $0.36 per share on its common stock.

According to Wall Street analyst estimates, Marathon Oil’s next dividend payment of $0.05 per share is due in 3Q16. The indicated annual dividend rate is $0.20 per share.

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Marathon Oil’s dividends history

From 3Q14 to 3Q15, Marathon Oil paid a dividend of $0.21 per share on its common stock. Marathon Oil’s dividend yield increased from 3Q14 to 3Q15, mainly because of the steep decline in its stock price. But MRO’s stock price has been in a downtrend due to falling crude oil (USO) prices, and when a stock price falls, the dividend yield increases.

Marathon Oil curtails dividend

In October 2015, Marathon Oil announced a reduction in its quarterly dividend on common stock from $0.21 per share to $0.05 per share. This decision to reduce its dividend was consistent with the MRO’s broader initiatives to cut costs.

While commenting on the dividend reduction, Lee Tillman, Marathon Oil’s President and Chief Executive Officer, stated: “We believe the revised dividend appropriately addresses the uncertainty of a lower for longer commodity price environment. The decision aligns with our priority of maintaining a strong balance sheet through the cycle and provides us additional capital flexibility to support growth from our deep inventory of investment opportunities in the US resource plays when commodity prices improve.”

The dividend adjustment is expected to boost MRO’s annual free cash flow by more than $425 million.

Other upstream players

Due to the steep downtrend in energy prices, many upstream companies are cutting back on dividends. In the past year, Energen (EGN) and Denbury Resources (DNR) both announced that they have discontinued their cash dividends on common stock in response to the significant fall in energy prices.

Notably, the SPDR S&P Oil and Gas Exploration & Production ETF (XOP) generally invests at least 80% of its total assets in oil and gas exploration companies. The ISE-Revere Nat Gas Index Fund (FCG) invests in natural gas producers.

Continue to the next part for a discussion of proved reserves.

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