Dividend Decisions in US Oil & Gas: Insights from the Upstream Sector

Abstract

The purpose of this study is to analyse the determinants of dividend policy within the North American Oil and Gas (O&G) sector. Given the industry’s critical role in the global energy landscape and its reputation for stable dividend payments, the research aims to identify the factors influencing dividend decisions and to examine the relevance of traditional dividend theories in this context. The study employs a panel data approach using a sample of 91 independent O&G companies operating in North America between 2006 and 2023. A random effects model is applied to assess the relationship between dividend payout ratios and explanatory variables, including Brent oil prices, risk, and leverage. The analysis also tests the applicability of life cycle, stakeholder, and free cash flow theories in explaining dividend behaviour within the sector. The empirical results show that Brent oil prices exert a positive and significant influence on dividend policies, confirming the industry’s sensitivity to commodity price cycles. Traditional theories such as life cycle, stakeholder, and free cash flow models are validated for the first time in the North American O&G context. Conversely, risk and leverage exhibit a negative relationship with dividend payouts, underscoring the importance of financial stability in sustaining shareholder returns. This research contributes to the literature by providing one of the most comprehensive empirical assessments of dividend policy determinants in the North American O&G industry. It bridges theoretical perspectives with sector-specific realities, offering new evidence on how commodity prices and financial structure jointly shape dividend decisions. The findings offer valuable insights for investors, policymakers, and corporate managers seeking to optimize dividend strategies and anticipate payout behaviour in response to market dynamics.