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How the Dividend Cut Affected MRO’s Dividend Yield

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What led to MRO’s negative EPS despite increased revenues in 9M17?

Marathon Oil’s (MRO) revenues recorded 27.0% growth in 9M17. Every segment of the company drove this growth. MRO’s costs and expenses rose 6.0% due to higher impairment and exploration costs. As a result, the company’s negative income from operations fell 60.0%.

MRO’s interest expenses decreased 4.0% during this period, which translated into much higher negative earnings per share (or EPS) compared to 9M16. The company has been generating negative free cash flow since 2014.

 

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How has the dividend yield evolved over the years?

Marathon Oil (MRO) took a 71.0% dividend cut in 2016 followed by the same dividend per share in 2017. Its stock price has lost 9.0% on a year-to-date (or YTD) basis after gaining 37.0% in 2016. As a result, the dividend yield curve also resembles the other dividend cutters.

Marathon Oil has a dividend yield of 1.3% and a YTD return of -8.8%. This trend compares to the sector’s average dividend yield of 1.6% and a PE ratio of 34.0x.

Comparison with broad indexes

The S&P 500 (SPX-INDEX) (SPY) offers a dividend yield of 2.3%, a PE ratio of 22.7x, and a YTD return of 15.5%. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has a dividend yield of 2.3%, a PE ratio of 21.2x, and a YTD return of 18.7%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has a PE ratio of 25.4x and a YTD return of 25.4%.

The PowerShares High Yield Equity Dividend Achievers ETF (PEY) is a dividend ETF with 14.0% exposure to energy. It has a PE ratio of 18.7x and a dividend yield of 2.8%.

The SPDR S&P International Dividend ETF (DWX) is a dividend ETF with 2.0% exposure to energy. It has a PE ratio of 16.0x and a dividend yield of 5.0%.

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