ConocoPhillips: Among the Best GARP Stocks that Pay Dividends

As an investor, you're always on the lookout for companies that offer a combination of growth, stability, and income. ConocoPhillips (COP), the Houston-based energy giant, checks all these boxes and more. With a strong track record of dividend growth and a robust balance sheet, COP is an attractive choice for investors seeking a reliable income stream with the potential for capital appreciation. Let's dive into why ConocoPhillips is among the best GARP (Growth at a Reasonable Price) stocks that pay dividends.



Dividend History and Growth

ConocoPhillips has a long history of paying and increasing dividends to its shareholders. The company's annual dividend has grown at a compound annual growth rate (CAGR) of approximately 7% over the past decade, and it has increased its dividend for 17 consecutive years. This consistent dividend growth, coupled with a low payout ratio (currently around 40%), indicates that COP is committed to returning capital to shareholders while maintaining a strong financial position.



Strong Financial Performance

ConocoPhillips' financial performance has been consistently strong, with the company generating significant cash flow and earnings. In 2024, COP reported earnings of $9.25 billion and cash provided by operating activities of $20.12 billion. The company's return on equity (ROE) and return on invested capital (ROIC) indicate that it is effectively managing its capital and generating value for shareholders.

Dividend Yield and Payout Ratio

ConocoPhillips' dividend yield is currently around 3.24%, which is higher than the average dividend yield of energy stocks (around 2.5-3%) and the broader market (around 1.5-2%). The company's dividend payout ratio is around 39.95%, which is lower than the average payout ratio of energy stocks (around 40-50%) and the broader market (around 40-60%). This combination of a high dividend yield and a low payout ratio makes COP an attractive option for income-oriented investors.

Reserve Replacement and Production Growth

ConocoPhillips' ability to replace its oil and gas reserves is crucial for maintaining long-term production and dividend sustainability. The company's reserve replacement ratio (RRR) has been consistently above 100%, indicating that it is successfully replacing its reserves and maintaining its production capacity. Additionally, COP has demonstrated the ability to grow its production, with total company production increasing by 2.5% in 2024.

Valuation and Growth Potential

ConocoPhillips' stock price has increased by approximately 12% over the past year, and the company's enterprise value (EV) to earnings (E) ratio is around 15.25, which is relatively low compared to other energy stocks. This suggests that COP may be undervalued and offers potential for capital appreciation. Additionally, analysts have set an average price target for COP of $133.44, which is 38.63% higher than the current price, indicating that there may be significant upside potential for the stock.



Conclusion

ConocoPhillips is an attractive choice for investors seeking a combination of income, stability, and growth. With a strong track record of dividend growth, a robust balance sheet, and a low payout ratio, COP offers a reliable income stream with the potential for capital appreciation. The company's strong financial performance, reserve replacement, and production growth, coupled with its attractive valuation and growth potential, make it an excellent choice for investors looking for a GARP stock that pays dividends. As always, it's essential to conduct thorough research and consider your investment objectives and risk tolerance before making any investment decisions.