EOG Assets (EOG -1.18%) has a wonderful document of paying dividends. The oil and gasoline producer has delivered 27 years of sustainable and rising dividends. Whereas the corporate hasn’t elevated its payout each single yr since its preliminary public providing, it has by no means decreased its cost, which is a rarity within the oil patch.

Additional, it has grown its payout twice as quick as its friends since 2019. On high of that, EOG has paid a number of particular dividends in recent times.

The oil inventory not too long ago added lots extra gasoline to its dividend progress engine. It is shopping for Encino Acquisition Companions in a $5.6 billion deal that is so accretive that EOG is boosting its dividend cost by one other 5%. That may additional improve its already engaging yield of over 3.5%, greater than double the S&P 500‘s (^GSPC -0.01%) 1.3% dividend yield.

Here is a better take a look at the deal and why dividend traders ought to take into account including EOG Assets’ high-octane payout to their revenue portfolio.

Picture supply: Getty Photographs.

Including extra low-cost oil and gasoline to its portfolio

EOG Assets is likely one of the nation’s largest oil and gasoline producers. It has a multi-basin portfolio loaded with low-cost assets. The corporate estimates that it at the moment has over 10 billion barrels of oil equal (BOE) assets that it could faucet into within the coming years.

The oil and gasoline producer has largely constructed its useful resource portfolio by way of natural exploration. Not like others within the oil patch, EOG Assets prefers to not make company acquisitions as a result of these are usually costlier. Nonetheless, it would pounce on a deal when the correct alternative arises.

That not too long ago occurred. The corporate has agreed to purchase Encino Acquisition Companions for $5.6 billion. Encino holds over 675,000 internet acres within the Utica Shale play of Ohio. That deal considerably will increase EOG’s place within the play, which can have a mixed 1.1 million internet acres with an estimated 2 billion BOE of undeveloped internet assets after the transaction closes. That may give the corporate a 3rd foundational useful resource place alongside its property within the Delaware Basin and Eagle Ford Shale in Texas.

EOG Assets expects the deal to be instantly accretive to its monetary metrics. It sees the acquisition boosting its money circulate from operations and free money circulate by 9%. Given the largely undeveloped acreage, the deal ought to improve the corporate’s potential to develop its manufacturing within the coming years.

A rock-solid, dividend-paying machine

EOG Assets is utilizing its robust stability sheet to fund this deal. It is using $2.1 billion of money available and plans to challenge $3.5 billion of recent debt.

The corporate has spent the previous a number of years constructing a fortress stability sheet. It ended the primary quarter with $6.6 billion in money and solely $4.7 billion in debt. After closing the deal and adjusting for a current $500 million debt compensation at maturity and a $275 million bolt-on acquisition within the Eagle Ford, EOG can have $3.7 billion in money in opposition to $7.7 billion of debt.

That is nonetheless a really robust monetary place. Even when oil costs fell to $45 per barrel, EOG’s leverage ratio could be lower than 1 occasions.

As talked about, the deal is so accretive to the corporate’s money circulate that EOG Assets is bumping its dividend cost by one other 5% per share. That is on high of the 7% increase the corporate supplied traders earlier this yr.

The corporate’s dividend cost ought to proceed rising sooner or later. EOG’s high precedence for its money circulate is to pay a sustainable and common dividend. Dividends are the corporate’s major mode of returning money to shareholders (over share repurchases). It goals to pay a aggressive dividend in comparison with its peer group and the broader market.

EOG’s different money circulate priorities are to keep up a powerful stability sheet (which it would have after closing this deal), make investments capital to develop its enterprise (concentrating on 5% manufacturing progress this yr earlier than factoring within the Encino deal), and return extra money to shareholders. Given the power of its stability sheet, EOG has the capability to return over 100% of its annual free money circulate to shareholders. It does that via particular dividends and opportunistic share repurchases.

EOG has targeted extra on repurchasing its shares ($800 million in repurchases within the first quarter) as a result of its at the moment engaging share worth (down 20% from its 52-week excessive). These repurchases assist steadily scale back its shares excellent (down 6% over the previous three years), which boosts its potential to extend its dividends per share.

A well-oiled dividend progress inventory

EOG Assets has a wonderful document of paying dividends. It ought to have loads of gasoline to proceed rising its high-yielding payout, particularly after shopping for Encino. Due to that, it is a terrific dividend inventory to think about including to your revenue portfolio proper now.