Allen Good: We think the major integrated oil group offers a bevy of opportunities for dividend-focused investors. Currently yielding anywhere from 4% to 6.5%, the group is largely undervalued based off our assumptions. At those dividend levels, they are trading at historically high levels compared to decades ago, when they traditionally yielded anywhere from 3% to 4%. However, we do not see dividends at risk.
Subsequent to the collapse in oil prices in 2014, all these firms have done significant work in improving their operating and capital cost structure. So, now the dividends are largely safe down to oil prices are $50. Given our long-term assumption around $60 per barrel oil, we think dividends are largely safe as well.
Of the group, Shell RDS.A and Total stand out with the greatest opportunity in our opinion. Shell, yielding nearly 6.5%, has grown cash flow steadily over the past eight quarters, and we expect it to continue to do so. In fact, management's current plans call to return $125 billion in dividends and share purchases during the next five years. That's nearly half its current market cap.
Total TOT, meanwhile, is also improving cash flow. It expects to grow operating cash flow by about $1 billion per year during the next five years, thanks to growing production as well as improved downstream profitability. This growing cash flow should ultimately support dividend growth annually of about 5% to 6%. This makes their current yield of about 5.5% look much more attractive compared to peers.