Everyone loves gifts. But not everyone thinks of corporations as gift-givers. Nevertheless, many companies do dole out monetary "gifts" to shareholders in the form of dividends. In fact, smart investors know that some companies pay more than one type of dividend: regular dividends and special dividends.
Let's talk about one company scheduled to pay out a special dividend: EOG Resources (EOG -0.01%).
Special dividend
Now, technically speaking, dividends aren't gifts. They're the fulfillment of a promise. When you buy a stock, you become a partial owner of the company, and you get a (small) claim on that company's earnings. A dividend payment is a reward for your investment -- your piece of the pie, so to speak. When it comes to EOG, there are two types of dividends the company pays: regular and special.
EOG pays a regular quarterly dividend of $0.75/share, for a total of $3.00/share annually. With EOG shares trading around $145, this results in a dividend yield of 2.13%. However, EOG has also declared a special dividend based on its abundant free cash flow. With EOG's free cash flow surging due to high oil and natural gas prices, the company announced it would pay a $1.80/share special dividend to anyone owning shares on June 14. That date will serve as the ex-dividend date.
EOG Dividends Paid (TTM) data by YCharts.
As you can see, EOG's total dividend payments have skyrocketed in recent years. The company's trailing-twelve-month (TTM) dividend payments are now up almost 800% versus their 2018 level.
What's powering these dividend payments are increased margins and higher free cash flow. During the pandemic, the company focused on shuttering its most cost-intensive wells and focusing on those that generate returns of 60% or more. As a result, EOG's operating margin now stands at 43.15%, up from a pandemic-low of 4.64%. And as margins have soared, so has free cash flow. EOG has reported $3.8 billion of free cash flow over the last twelve months, with more than half of it then returned to shareholders in the form of dividends and share buybacks.
Wall Street is increasing its estimates for EOG
The dividends (regular and special) are great, but there are other reasons to like EOG. Consider this table of recent earnings estimates.
| EOG Resources Earnings Estimates | |||
|---|---|---|---|
| Time of Estimate | Current Quarter (Jun 2022) | Current Year (2022) | Next Year (2023) |
| Current Estimate | $4.21 | $16.81 | $14.98 |
| 7 Days Ago | $4.19 | $16.70 | $14.90 |
| 30 Days Ago | $4.15 | $16.06 | $14.32 |
| 60 Days Ago | $3.71 | $13.98 | $12.79 |
| 90 Days Ago | $3.12 | $12.18 | $11.24 |
Source: Yahoo Finance.
Wall Street estimates for EOG's earnings have exploded higher in the last 90 days. For 2022, the consensus earnings per share (EPS) estimate is now $16.81, up $4.63 (38%) from three months ago. In a nutshell, analysts are scrambling to raise their guidance as runaway oil and gas prices are making oil and gas producers like EOG more profitable by the day.
Due to those rising estimates and its solid free cash flow, I'm bullish on EOG. If you're an investor looking to add a U.S. based oil and gas producer, EOG is a name you should consider.
