ConocoPhillips (COP) on Wednesday said it will increase its quarterly dividend by 6% to 50 cents per share (annualized rate of $2.00 per share) from the existing rate of 47 cents (annualized rate of $1.88). The increased dividend is payable on Dec. 1, 2009, to shareholders of record as on Oct. 30, 2009.

The company intends to sell $10 billion of assets over the next two years. It has lowered its capex budget in 2010 in an effort to strengthen its financial position and improvement in balance sheet.

Conoco expects to spend approximately $11 billion in capital projects during 2010, compared to $12.5 billion in 2009. The assets sale will occur across the company’s exploration and production (E&P) and refining and marketing (R&M) portfolio. The company will use the sale proceeds to reduce its debt level and meet its stated target debt-to-capitalization ratio of 20% to 25% from the current level of 34%.

The company has significantly transformed its asset portfolio over the last few years through major acquisitions and targeted divestitures. While Conoco wants to accelerate the return on capital employed (ROCE) through these strategic dispositions, it has been lagging its super-major peers in terms of this metric.

We believe that Conoco’s ability to bring its ROCE in line with its super-major peers will become difficult, given its need for increased capital outlays to achieve upstream growth. We also concerned about the company’s heavy exposure to the tentative U.S. natural gas (more than one-third of its total volume) and refining markets. Our Neutral recommendation for the stock remains unchanged.

Zacks Investment Research
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