A Strategy Behind The Oil Price

1007 Words5 Pages
Oil companies have struggled since the oil price rout started in 2014. Cost cutting has been the norm for most companies and for many cost cuts included dividends. Some companies have refused to put dividends on the chopping block and in the face of plunging valuations have maintained or even increased dividends.

It may seem counter-intuitive but there is a strategy behind the decision to maintain dividends despite falling oil prices. The oil price collapse has hammered many companies stock values, and when stock values plunge companies need to do what they can to attract investors. Dividends are a method to attract new investors, and keep the current ones happy. Even as stock values fall, a monthly, quarterly, or annual bonus appeals to many investors. Not all companies have the luxury of pursuing this strategy.

<>Evaluating Dividends <>

Dividends are a per share payment, distributed to shareholders on a monthly, quarterly, or annual basis. The per share payment is easy for investors to understand when it comes to getting their dividend checks, but it is hard to analyze the total return for the amount of money invested in the company’s stock by looking at per share dividend payment alone. To properly evaluate dividends, look to the [dividend yield].

A dividend yield is the amount of dividends a company pays relative to its stock price. It is calculated by dividing dividends paid per share by stock price. For an investor, this gives an idea of how much dividend payment
Open Document