ConocoPhillips Offers a 3.42% Yearly Dividend, Yet Selling Puts Could Earn Investors 1.5% Each Month

ConocoPhillips (COP) Dividend Yield and Investment Opportunities

ConocoPhillips (COP) currently offers a dividend yield of 3.42%, which is notably higher than its five-year historical average. This suggests that the stock could have significant upside potential, with a projected price target of $126.65—about 29% above its present value. Additionally, investors have the opportunity to generate approximately 1.5% monthly returns by selling out-of-the-money (OTM) put options.

Recent Stock Performance

As of Friday, January 16, COP closed at $98.19. Over the past month, the stock has dipped as low as $90.16 (on December 16) and has generally fluctuated between $90 and $100 during the last two months.

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Recent Dividend Increase

Since November 6, 2025, when ConocoPhillips raised its quarterly dividend by 7.69% to $0.84 per share (annualized to $3.36), the stock has been on a gradual upward trend. This increase in dividend yield, which remains above its historical average, points to a higher potential price for COP shares.

Further Analysis and Strategy

These insights, along with the strategy of selling OTM puts, were discussed in detail in Barchart articles published on December 19 and November 21, 2025.

Estimating COP’s Price Target Based on Dividend Yield

According to Yahoo! Finance, COP’s average dividend yield over the past five years stands at 2.53%, which is lower than the current yield of 3.42% (calculated as $3.36 DPS divided by $98.19). Morningstar reports a five-year average of 2.29%, while Seeking Alpha cites 3.14%. Averaging these figures gives a five-year mean yield of 2.653%.

If COP’s yield eventually aligns with this average, the estimated price target would be:

$3.36 DPS / 0.02653 = $126.65

This represents a potential increase of 29% from the current price:

$126.65 / $98.19 = 1.291, or +29.1% upside

Even if oil and gas prices remain steady or decline, COP shares could still appreciate, assuming the market expects the yield to revert to its historical average.

For a more conservative estimate, if the yield moves toward 3.0%:

$3.36 DPS / 0.03 = $112.00

This would still be about 14% above the current price, indicating that COP may be undervalued.

Investors seeking additional income and a lower entry point might consider selling short OTM cash-secured put options with monthly expirations.

Generating Income with Short OTM COP Puts

In a previous Barchart article (December 19), the recommendation was to “Sell to Open” a put contract expiring January 23, 2026, at a strike price of $88.00—5% below the then-current price of $92.44. The premium at that time was $1.13 per contract, yielding 1.284% ($1.13/$88.00). As of January 16, this premium has dropped to $0.12, suggesting the contract will likely expire worthless, making it a profitable trade.

Similar opportunities are available going forward. For example, the February 20, 2026, expiration for the $92.50 strike put contract offers a midpoint premium of $1.63, which is 5.79% below the latest closing price. Selling this contract provides an immediate yield of 1.762% ($1.63/$92.50).

For a more cautious approach, the $90.00 strike put expiring February 20 has a midpoint premium of $1.05, resulting in a one-month yield of 1.167% ($1.05/$90.00).

By selling both contracts, a conservative investor could achieve an average monthly yield close to 1.5%:

1.167% + 1.762% = 1.4645%

With delta ratios between -0.18 and -0.26, there is roughly a 22% probability that COP’s price will fall between $90 and $92.50 by expiration.

The main risk is that COP drops below $90.00 before February 20, which could lead to an unrealized loss. However, the income received from selling the puts helps reduce the breakeven point.

In summary, COP appears to remain undervalued, and selling short OTM puts with one-month expirations is a viable strategy for investors seeking both income and a potential lower entry price.

Disclosure

As of the publication date, Mark R. Hake, CFA, did not hold any positions in the securities mentioned.