Marathon Oil’s (NYSE:MRO)…

Marathon Oil Corporation (NYSE:MRO) has announced that it will be increasing its dividend on the 10th of March to US$0.07. This takes the annual payment to 1.1% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Marathon Oil

Marathon Oil’s Distributions May Be Difficult To Sustain

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even though Marathon Oil isn’t generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS could expand by 23.2% if recent trends continue. It’s nice to see things moving in the right direction, but this probably won’t be enough for the company to turn a profit. The healthy cash flows are definitely as good sign, though so we wouldn’t panic just yet, especially with the earnings growing.

historic-dividend
NYSE:MRO Historic Dividend January 30th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from US$1.00 to US$0.28. Dividend payments have fallen sharply, down 72% over that time. Generally, we don’t like to see a dividend that has been declining over time as this can degrade shareholders’ returns and indicate that the company may be running into problems.

The Company Could Face Some Challenges Growing The Dividend

Given that the track record hasn’t been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Marathon Oil has grown earnings per share at 23% per year over the past five years. The company hasn’t been turning a profit, but it running in the right direction. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

Our Thoughts On Marathon Oil’s Dividend

Overall, we always like to see the dividend being raised, but we don’t think Marathon Oil will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn’t been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we’ve identified 4 warning signs for Marathon Oil (1 is potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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