Denbury Resources: A different kind of oil company (Part 4 of 12)

Why investors should watch Denbury Resourcess dividends

By Magnus Tchekhov Feb 27, 2015 12:45 pm EDT

Dividends

Dividends are an important factor to consider for investors, particularly for investors seeking income. When dividends are relatively large, they can have material effect on an investment’s short-term returns. In the long run, even small, regular dividends can affect returns substantially.

Denbury Resources (DNR ) started paying quarterly cash dividends of $0.0625 per share in the first quarter of 2014. This translated into an annualized dividend of $0.25 per share for 2014.

Dividend philosophy

Denbury Resources’s dividend philosophy is meant to appeal to both income and growth investors. It intends to pay steady dividends that grow with cash flows over time. More importantly, it endeavors to practice fiscal discipline with regard to its dividends and capital expenditures. The company plans to do this by keeping dividend payouts and capital expenditures well within cash flows.

Dividend ambitions

Before the energy rout struck, Denbury Resources had high ambitions for its dividend growth. It had planned to boost quarterly distributions from $0.0625 per share in 2014, to $0.10 per share in 2015. This would have pushed its annualized dividend up by 60%, to $0.40 per share.

At prices prevailing in November 2014, Denbury had projected its 2015 dividend yield (dividend divided by share price) to jump to 3.6% from 2.2% in 2014. This was shown as leapfrogging the company to the top of the independent exploration and production C-corp companies league in terms of dividend yield.

Among its comparable peers, Occidental Petroleum (OXY ) was shown trailing with a 3.3% dividend yield, followed by Murphy Oil (MUR ) and Marathon Oil (MRO ) at dividend yields of 2.7% and 2.6%, respectively. These four companies combined account for

5% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP ).

However, following a sharper drop in crude prices in the following months, Denbury’s fiscal discipline kicked in, and it decided to keep dividends steady. So, given an upturn in crude oil, investors can expect the company to boost dividends.