Why Dividend Cuts Matter In Goldman's 'New Oil Order'

Following last week’s news that ConocoPhillips COP slashed its dividend by about two-thirds, Goldman Sachs analyst Brian Singer this week released a new report discussing other dividend payers that could follow Conoco’s lead and what dividend cuts mean for the market in terms of stock differentiation.

“We believe the importance of the dividend to investors relative to the differentiation in asset base is the key reason for the variation in production reactions,” Singer explained.

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Following ConocoPhillips’ massive selloff after announcing its dividend cut, identifying the other potential cuts on the horizon is extremely important for dividend investors.

Other Possible Names

In terms of oil majors, Singer sees much more risk in Europe and Canada than in the United States. He names Repsol Oil & Gas Canada Inc (USA) TLM and Statoil ASA(ADR) STO as two names with a high risk of a dividend cut.

Although he predicts both Exxon Mobil Corporation XOM and Chevron Corporation CVX will maintain their dividends, he believes Exxon is the safer of the two.

E&P investors are generally more concerned with asset quality than dividends, but Singer names Murphy Oil Corporation MUR, Crescent Point Energy Corporation Ordinary Shares (Canada) CPG, Vermilion Energy Inc VET and Occidental Petroleum Corporation OXY as stocks that could see major negative reactions to dividend cuts.

Disclosure: The author holds no position in the stocks mentioned.