Occidental Stock Drops, But Yield Could Boost Value by 25%
Occidental Petroleum Corp (OXY) is currently attracting attention due to potential developments regarding its dividend policy. While the stock price has fluctuated recently, analysts suggest that the company’s stock could be significantly undervalued, presenting a potential opportunity for investors. As of today, OXY is trading at $39.77, a decrease from September 29th’s $48.10, but an increase from its recent trough of $38.92 on December 16th. The market is closely watching for any indications of a dividend increase, which could drive the stock price upward.
OXY’s Potential Dividend Hike and Valuation
The prospect for a dividend hike has fueled considerable interest in Occidental’s stock. Initial projections, based on information from November 25th, 2025, indicated a potential dividend increase of approximately 4.2% if the company raises its dividend per share (DPS) to $1.00, up from the current annual payment of 96 cents. Occidental has consistently increased its dividend payouts after maintaining a consistent dividend for four consecutive quarters, as noted by Seeking Alpha. This increase would represent a move from 84 cents to 96 cents, a +9% hike observed in 2024. However, the company’s approach to its dividend has remained consistent for the past four years.
Applying the Mean Reversion Effect to Assess Valuation
A key element in evaluating OXY’s potential price movement stems from the concept of “mean reversion.” This investment philosophy posits that a stock’s yield tends to fluctuate around its average, reverting to that average particularly when the yield deviates significantly. Over the last 12 months (LTM), OXY stock has had an average yield of 2.33%, according to Yahoo! Finance. Currently, with a price of $39.77, the dividend yield (DY) is 2.414%, or $0.96/$39.77. Furthermore, data from Yahoo! Finance reveals that OXY’s yield has historically ranged as low as 1.16% over the past five years. Morningstar’s Dividend tab also highlights a range between 1.78% and 2.38% over the last two years. To illustrate the application of this theory, analysts have conservatively estimated a 2.0% yield, assuming a reversion to the mean: $1.00 / 0.02 = $50.00. This suggests that if OXY increases its DPS by 4% to $1.00 in late January or early February, and if the stock returns to a 2.0% dividend yield from its present 2.4% yield, OXY would rise to $50.00. This equates to a potential upside of +25.7% from the current trading price.
Analyst Consensus and Short-Selling Strategies
The sentiment among analysts appears positive, with a consensus price target of $49.92, according to Yahoo! Finance, which is nearly identical to Mark Hake’s $50.00 target. Barchart’s survey results also show an average price of $49.36. Further reinforcing this view, Analyst Price Target data indicates that 18 analysts have an average price target of $50.56. Given this strong analyst consensus, investors are exploring various strategies. One commonly discussed approach, as outlined in a previous article, involves shorting out-of-the-money (OTM) puts. This strategy generates immediate income while positioning the investor to benefit from a potential price decline.
The Potential of OTM Put Options
For example, the Jan. 23, 2026, expiry period option chain reveals that the $38.00 strike price put has a 48-cent premium. This offers a short-seller an immediate one-month yield of 1.26% (i.e., $0.48/$38.00). The strike price is approximately 4.4% below today’s trading price, and the 0.2558 delta ratio suggests a 26% probability that OXY will fall to $38.00. As of December 23, 2025, the key takeaway is that OXY appears significantly undervalued, and shorting OTM puts presents a viable investment strategy.
Disclaimer
It is important to note that Mark R. Hake, CFA, did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
