Repsol SA: from state-owned to global energy player

Repsol SA is a petroleum company based in Spain that operates across more than 50 nations. Madrid is home to the headquarters. The company was established in 1987 through the merger of several state-owned Spanish companies that were involved in various aspects of the oil and gas industry, including exploration, production, refining, transportation, and other related activities.

History of Repsol SA

The only shareholder in the business was the Spanish state, and Repsol SA was named after a well-known brand of lubricating oil that had been sold by Refineria de Petróleos de Escombreras, one of the company’s predecessors since 1951.

After Spain joined the European Economic Community (which was the forerunner of the European Union) in 1986, the government was required to deregulate the oil industry. During the eight-year privatisation process, that began in 1989, all of Repsol’s shares transitioned to private ownership. Repsol had to adapt to foreign competition in Spain, but it also grew internationally, entering markets in the Middle East, South America, and North Africa.

Almost twice as much petroleum was held by Repsol when it bought the majority of Yacimientos Petrolíferos Fiscales (YPF), the state-owned oil company in Argentina, in 1999. Repsol YPF SA became the new name of the business. Though the new company found limited profit in increasing production in Argentina’s heavily regulated petroleum market, in 2011 it discovered a significant shale oil field in the province of Neuquén. YPF’s managers were replaced and legislation to nationalise nearly all of Repsol’s majority stake was introduced by the Argentine government in April 2012, fed up with the stagnation of the country’s energy sector.

With those actions, the Spanish company effectively lost over half of its production and half of its petroleum reserves. Future payments for the nationalised stock and Repsol’s other producing and refining operations in Latin America, North America, Africa, Europe, and Asia would determine how the loss would affect the company’s future.

Repsol SA manages the entire oil industry, from the extraction, development, and production of natural gas and crude oil to the transportation of petroleum products, liquefied petroleum gas (LPG), and natural gas, as well as the production of petrochemicals and a wide range of derivatives from these products. The business also has investments in alternative energy projects like biofuels and electric vehicle charging infrastructure.

Repsol, S.A. (BME) is worth watching: Ex-dividend date approaching

Repsol SA (BME:REP) was set to go ex-dividend early in July which could attract dividend enthusiasts who depend on dividends to increase their wealth. The day that stockholders must be listed on the company’s books to receive a dividend is known as the record date, and the ex-dividend date falls one day ahead of that date. Because a stock transaction requires at least two business days to settle, the ex-dividend date is significant. For investors who bought Repsol’s shares on or after July 4th, this implies that they wouldn’t have received the dividend, which was scheduled to be paid on July 8th.

Following a year in which it paid out a total of €1.00 per share to shareholders, the company was set to distribute an upcoming dividend of €0.405 per share. According to a trailing yield calculation based on the past year’s payments, Repsol has a 6.8% yield on its current share price of €14.735. However, investors should constantly verify if Repsol has been able to increase its dividends or if they may be reduced.

Since dividends are normally deducted from corporate income, Repsol SA ‘s dividend is typically more likely to be lowered if it pays out more than it earns. Repsol distributed 38% of its earnings from the previous year. However, when evaluating dividend sustainability, cash flow usually takes precedence over profit, so you should always make sure the company made enough money to pay its dividend. In the previous year, it distributed over half (67%) of its free cash flow, which is within the typical range for most businesses.

The fact that profit and cash flow are sufficient to cover the dividend is encouraging. In general, this indicates that the dividend is sustainable—as long as profits don’t decline sharply.

The best dividend stocks are often those that have steadily increasing earnings per share because it is typically easier for them to increase dividends per share. Because dividends are appealing to investors, a stock’s heavy selling should occur concurrently with a decline in earnings and a reduction in the dividend. Luckily for readers, over the last five years, Repsol SA ‘s earnings per share have increased at a rate of sixteen percent annually. Repsol is allocating slightly more than half of its profits, indicating that the business is balancing dividend payments with growth-oriented reinvestment. Future dividend increases might be possible given the current payout level and the rapid growth of earnings per share.

A common way for investors to evaluate a company’s dividend performance is to look at how much the payments have fluctuated over time. Repsol’s dividend payments are essentially unchanged from a decade ago. From a dividend standpoint, it is encouraging that the company is paying out slightly more than half of its free cash flow and less than half of its earnings per share, and that earnings per share have been increasing. This combination shows promise and should make this company worthy of further investigation.

Iberdrola sees production drop as Repsol finalises share buy-back

One of the top producers of green energy in the world, Iberdrola, reported a 24% decrease in electricity production from the previous year, to 30,016 GWh. This downturn brings to light persistent issues facing the energy industry, which may have a negative impact on the company’s financial situation.

However, Repsol SA made a calculated decision to reduce its share capital by 40 million euros ($43.57 million) and buy back 35 million shares in order to increase shareholder value. Morgan Stanley, however, downgraded its target price for Repsol from 19.2 euros to 17.7 euros ($19.28), indicating a cautious outlook for the market.

The production problems at Iberdrola highlight larger industry issues that could affect investor sentiment. On the other hand, despite market analysts’ cautious attitude due to volatile energy prices and market conditions, Repsol’s aggressive capital management through share buybacks demonstrates a commitment to generating shareholder value.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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