National Oilwell Varco: A Dividend Increase Would Be Reckless

Financial markets have been spurred by record low rates, rising oil prices and President Trump's promise of infrastructure investing and lower taxes. There has been an eight year bias to the long side, which has encouraged activist investors to devise public relations campaigns to spur stocks. The latest PR campaign apparently involves National Oilwell Varco (NYSE: NOV) increasing its dividend:
Early last week, NOV was up just over 5% on news that Ackman's hedge fund may have taken a stake in the company. However, the investor relations team at NOV denied that any such activist had contacted them ... One of the potential items that analysts looked at as to why an activist might take a stake in the company. One item that was brought up was the notion of a special dividend.
A special dividend or any other dividend by National Oilwell would be reckless, in my opinion. The mere notion is silly for the following reasons.
NOV's Cash Flow Is Still Dismal
In April 2016 National Oilwell cut its dividend by 89%. It did this for a reason - the company's cash flows had been falling precipitously since the downturn in the oil industry. In addition to dividend payouts, the company had spent about $3 billion on share repurchases from 2014 to 2015. Its cash balance had fallen from $3.3 billion at year-end 2013 to $2.1 billion at year-end 2015. It needed to preserve what capital it had left in order to survive the oil patch.
In my opinion the company still needs to... Read more

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