Occidental Petroleum Corporation (NYSE:OXY) may be ready for a comeback. Though OXY remains the third-largest privately owned petroleum producer, OXY stock has spent most of the decade in a state of decline. Now, as the company releases its quarterly and annual reports, the company turns a corner on earnings.

With oil prices and OXY profits steadily rising, the company may now be poised to attract investor interest.

OXY Stock Met Estimates and Return to Profitability

For 4Q 2017, the company reported earnings of 41 cents per share for Occidental stock. This number meets estimates. The $3.59 billion in revenue gave OXY a 26.9% year-over-year increase. It also beat estimates by $60 million. This brings overall 2017 earnings to 61 cents per share.

Despite meeting estimates, the OXY stock price fell in trading the next day. One possible reason may involve hopes for an earnings beat. Earnings had beaten estimates in the previous four quarters. Investors may have perceived the numbers negatively since the company merely met estimates this time. However, since they came off of a loss in the same quarter last year, the numbers still represent a gain.

Peers such as Anadarko Petroleum Corporation (NYSE:APC), Marathon Oil Corporation (NYSE:MRO), Hess Corp. (NYSE:HES) and ConocoPhillips (NYSE:COP) will continue to report losses for 2017.

Expect OXY stock valuations to fall

Improving valuations should also favor OXY stock. The average price-to-earnings (P/E) ratio for upstream oil companies (which focus on exploration and production) stands at around 25. At current prices, OXY stock trades at a 98 P/E.

One must remember that positive earnings had not returned to Occidental until Q1 2017. Now, with profits rising, analysts place the forward P/E in the 45 range. That figure appears well above averages. However, valuation may not be as fat as it seems.

With an overall trend in rising earnings, analysts estimate 2020 earnings to come in at $3.74 per share. This means even with the high PE, the stock trades at under 20 times 2020 earnings. So, assuming these profit forecasts hold or move higher, valuation becomes less of a concern.

Upstream companies also perform best in an environment of rising prices as oil companies all want to increase production. Hence, OXY stock finds itself in the perfect climate for increasing stock prices. More diversified players such as Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) who did not see as much downside during the slump, won’t see as much upside during the recovery.

Occidental Also Benefits From a High Dividend

Another strength of the company has been its dividend. The dividend has risen every year since 2007. Today, the annual dividend now stands at $3.08 per share, a yield of nearly 4.4%.

This figure is more than double the yield for the S&P 500, and in this century, the company has voted in a dividend increase in most years.

Investors should also remember that OXY took a hit during the 2014-16 oil price collapse as exploration and production became unprofitable. Despite the slump, OXY continued raising the dividend. If dividend increases occurred under the worst of conditions, they should remain safe now that drilling activity has begun to rise.

Final Thoughts on OXY stock

In a climate of increasing production and prices, investors should look again to OXY stock. The company may have mildly disheartened Wall Street by merely meeting estimates. Still, the fourth-quarter numbers represented the majority of the profits earned in 2017. They also helped to give Occidental stock its first year of positive earnings since 2014.

And while the current valuation remains well above average, increased profit growth should bring the P/E in line with averages by 2020.

Moreover, an 11-year record of increasing dividends bolsters the case for OXY stock. The dividend currently yields over 4.4%, and it rises yearly. Also, if the company increased the dividend even as prices fell, an environment of rising prices makes increases in cash payouts even more likely. With current conditions, OXY stock serves as an excellent vehicle for drilling for stock gains—and cash flows.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.