Jim Trippon CPA

We read with interest a recent report in Barron's about the energy sector in 2010 that said investors may be well-suited to stick with oil companies rather than natural gas stocks in the new year. The cornerstone of the report was a bullish outlook for independent oil and gas explorer Occidental Petroleum (NYSE: OXY).

While California-based Occidental only yields 1.6%, the annual dividend is decent in dollar terms at $1.32 a share. In addition, the capital appreciation delivered by Occidental in 2009 is nothing to scoff at as the shares are up 40%.

Even with that big run, the Barron's report quotes a couple of analysts and fund managers that think most investors have woken up to the Occidental story and that when they do, the stock is poised for even more upside. We don't doubt that assessment for a minute.

As the Barron's piece noted, Occidental trades for just 14 times forward earnings compared to 17 times for its peer group. Occidental's balance sheet is also something to behold with an 8% long-term-debt-to-capital ratio, compared to 33% for rivals, the piece noted.

Those statistics are reasons to like Occidental, but one tidbit in the Barron's article that we found particularly noteworthy was an unidentified fund manager saying that Occidental's dividend could grow by 15%-20% in 2010.

Assuming a 20% dividend hike, that would take Occidental's dividend to just over $1.58 a share. Occidental has paid quarterly continuously dividends since 1975, a track record that we view as encouraging for investors.

Occidental does the bulk of its exploration in the U.S., but it does have some exposure to South America and the company was the only U.S. firm to win a bid as a junior partner in the recent round of Iraq oil field auctions.

Combine those factors with the company's shrewd acquisition of Citigroup's Phibro energy trading business and Occidental may in fact generate more than enough cash for a 2010 dividend hike.