3 reasons why this oil stock jumped 42.7% in the first half of 2021
Actions of Pioneer of natural resources (NYSE: PXD) climbed 42.7% in the first half of 2021, according to data provided by S&P Global Market Intelligence. Rising oil prices, a mega-acquisition and a new dividend policy that will mean more money in the hands of shareholders as oil prices rise have pushed Pioneer shares higher.
After increasing its dividend in early February for the fourth year in a row, Pioneer launched a new variable dividend policy later in the month under which it plans to distribute up to 75% of its free cash flow (FCF) of the previous year in dividends each year, on and above its base dividend. Pioneer will pay dividends under the new policy starting next year, and it expects to pay up to 50% of 2021 FCF next year.
But this is where things get interesting. Pioneer forecast a 50% FCF payment in 2022 assuming an average WTI oil price of $ 42 per barrel. With oil prices hovering around $ 70 a barrel at the time of this writing, shareholders can expect an even bigger windfall.
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Additionally, Pioneer expects to generate an additional $ 5 billion in FCF through 2026 through its recent acquisition of DoublePoint Energy, which could mean even larger variable dividends for shareholders.
Indeed, during its first quarter results call in May, when Pioneer shares were trading at around $ 160 apiece, management estimated that its FCF potential growth and variable dividends could increase the stock dividend yield to 4% in 2022 and to 8%. % or more by 2026 over the share at the time. As a perspective, Pioneer shares are hovering around $ 140 as of this writing and are returning 1.6%.
Unsurprisingly, investor sentiment towards Pioneer has remained high in recent months.
Pioneer’s next second quarter earnings report in early August should be interesting, as it will give investors a sense of DoublePoint’s contribution to the company. The $ 6.4 billion acquisition made Pioneer the largest producer in the Permian Basin and is expected to add substantial value to its earnings and cash flow.
For example, shares of Pioneer Natural Resources may have hit double digits in July following a massive sell-off in the Oil and gas industry, but its dividends will not disappoint even if oil prices fall.
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