HOUSEKEEPING: Paid subscribers can always find my current portfolio here (link). I’ll continue sharing it in emails, but now you can bookmark that page and check the portfolio and latest transactions easily.

This week, we had a market gain of -$1,762 and received $539 in dividends from Medical Properties Trust (MPW)

By now, you’ve seen the news headlines about the situation with banks. I don't know what will happen with banks, interest rates, or the market next week.

What I do know is that if you surveyed 100 people 99 of them would have told you the market would have dropped big time after the news from the last two weeks.

The market has been flat since the SVB news broke on March 8th. The market will pull back at some point (it always does), but I’m not trying to time it based on macro forecasting.

Instead, I’ll continue investing in a way that works for me. I’ll keep owning companies that I think are undervalued and will be worth more in 3 years than they are today.

An Introduction to Occidental Petroleum (OXY)

OXY is the newest position in the portfolio. Over the next couple of emails, I will share my research on the company and thesis for building a position.

Before we talk about the current business, let’s talk about two things:

#1 Berkshire buying

Berkshire keeps buying more shares. They currently own 23% of the company but they have regulatory approval to buy up to 50%. I think they’ll likely continue buying shares.

#2 Past performance & the dividend situation

From 2003 - 2019 the stock returned 13.26% per year (including dividends) vs the SPY returning 9.08% per year. A $10,000 investment in 2003 grew to $83,000 and paid $25,800 in dividends. During those 16 years, the dividend grew by 12.7% per year.

I want to show you the power of dividend growth and reinvesting dividends. If an investor had purchased $10,000 of OXY on 01/03/2003 when shares were $13.98, they’d have 715 shares. OXY paid a dividend of $0.49 in 2003, a 3.61% yield on cost for the investor.

If they had held their original shares and reinvested those dividends from 2003 - 20019, their share count would have grown from 715 to 1,099. Even better, the annual dividend grew from $0.49 to $3.10. The investor’s yield on cost was now 33%. Their initial $10,000 investment was now paying $3,318 in dividends per year. Pretty powerful stuff.

But, COVID turned the Oil & Gas industry upside down and OXY completely cut their dividend. They recently reinstated it and management plans to return capital to shareholders through dividends and share buybacks in the future.

The business

OXY has three business segments. Oil & gas, chemical, and midstream & marketing. The oil & gas segment explores for, develops, and produces oil, NGL, and natural gas. My overall thesis on oil and gas is that we will need it for a long time still, even as we move to more sustainable energy sources.

I’m most excited about the future of their chemical and midstream and marketing segments. You can see on the chart below, that oil & gas makes up most of their revenue, but Chemical and Midstream & Marketing are becoming more meaningful.

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