Sell stock pick Total out of my dividend portfolio--but not quite yet

05/31/2013 6:25 pm EST


Jim Jubak

Founder and Editor,

I’m going to sell Total (TOT) out of my dividend income portfolio

Although not quite yet. The stock has a dividend payment coming up in June (record date June 21) and I’ll stay around to collect that.

But after that I’ll be exiting these shares. I just don’t like the company’s balance sheet in the current jittery market.

Here’s the problem.

Total is doing more drilling in more promising basins than just about any international oil major I can think of. Key areas of exploration include Kenya, Gabon, Argentina, and the Gulf of Mexico. Eventually that drilling is going to turn into oil and cash flow. By 2015 or 2016 capital spending will be winding down. (Relatively—remember this an oil company and they never stop spending to find new oil.) By 2015 or 2016, then, Total should have lots of free cash flow.

But right now Total is in an investing stage. That means money is going out the door now to secure those future gains.

At the moment it looks like annualized cash flow (if you take the cash flow from the first quarter as representative) of $28 billion will be significantly short of the company’s need for cash in 2013. The capital spending budget for 2013 comes to $28 billion. And that leaves Total short the $7 billion it needs to pay dividends at the current rate.

Will Total have any trouble raising money in the financial markets to fill that gap?

In a normal market, I’d say, absolutely no problem.

But are we looking at a normal market? Interest rates in the United States and Japan seem to be creeping upwards. I don’t think rising interest rates will prevent Total from raising the cash it looks like it needs, but higher rates certainly could mean that Total will pay more for that cash. That prospect could lead to a reduction in the multiple that investors are willing to pay for Total’s earnings (and shares.) And that in turn could make the current price of $49.85 the high for a while. (The stock is very close to its last high of $51.44 set in March.)

Having watched shares of Total rally from a low of $46.19 on April 18, I’m not willing to ride the shares back down. I’d look to collect my next dividend payout in three weeks and then I’d like to give this one a summer vacation.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund , I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of Total as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at

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