Why the Origin Energy share price is the best performer on the ASX 200

The Origin Energy Ltd (ASX: ORG) share price is firing up as management announced its first dividend payment in three years at its investor briefing this morning.

The ORG share price surged 4.2% to $7.01 in late morning trade, which puts it at the top of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) leader board at the time of writing with the Goodman Group (ASX: GMG) share price and Coles Group Ltd (ASX: COL) share price in second and third places, respectively.

Weakness in the overnight oil price could dampen enthusiasm towards Origin even as the Woodside Petroleum Limited (ASX: WPL) share price tumbled into the red.

Dividend tap turned back on

Origin told investors it was on track to meeting its gearing target as it aggressively paid down debt and this will allow the gas producer and energy retailer to pay a 10 cent a share interim dividend at the February reporting season.

This is the first time the company will pay a dividend since February 2016 when it was forced to cut the payout due to falling gas prices.

Management said it would declare a final dividend of the same amount in August of next year.

But dividends aren’t the only thing that’s helping to turn sentiment towards Origin following the circa 30% plunge in Origin’s share price over the past six months.

Easing regulatory risks

The threat of heavy-handed government regulation looks like its quickly dissipating even as management slammed the aggressive stance taken by the Morrison government to win votes.

The federal government was threatening to give regulators the power to break-up integrated energy companies like Origin and AGL Energy Limited (ASX: AGL) in an effort to depress household power prices.

But this isn’t likely to happen as the minority government failed to win enough support for the change. The senate has voted to launch an enquiry into the legislation and the outcome won’t be known till March next year.

By then, the federal election would be around the corner and the new legislation probably won’t see the light of day.

Foolish takeaway

The regulatory risk was a major factor behind the de-rating in Origin Energy’s share price and I think the stock has a clear path to run higher over the next few months.

I am less worried about falling oil prices as gas prices have held up well (at least so far) and that is good news for Origin’s joint venture APLNG project, which has an anticipated FY19 breakeven that is around 25% below the current gas price from US shale exporters.

I think the stock is well placed to outperform the ASX 200.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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