When the subject of oil and gas stocks, the U.S. based giants like Exxon Mobil (XOM) and Chevron (CVX) inevitably come to mind. Indeed, these are the two largest oil and gas companies in the U.S., and they are both legendary dividend payers.

Exxon Mobil and Chevron have current dividend yields of 3.7% and 4%, respectively. For investors interested in even higher dividend payouts, international energy stocks are a good place to look. There are several European integrated majors that offer higher yields than the two U.S.-based behemoths.

One of which is Total (TOT), an oil and gas giant based in France. Total has a current dividend yield of approximately 5.3%. Total is one of 416 stocks that trades on a major U.S. stock exchange, with a 5%+ dividend yield. You can see the full list of established 5%+ yielding stocks by clicking here.

This article will discuss why investors interested in 5%+ dividend yields should give Total a closer look.

Business Overview

Total is the world’s fourth-largest oil and gas company. It produces approximately 2.5 million barrels of oil equivalents per day. It is an integrated oil and gas company, meaning it operates upstream, downstream, and marketing businesses.

Total’s segment breakdown is as follows:

• Upstream (38% of 2016 profits)
• Refining & Chemicals (45% of 2016 profits)
• Marketing & Services (17% of 2016 profits)

2016 was a challenging year for Total. Adjusted operating profit fell 17%, to $9.42 billion. Not surprisingly, the upstream business was hit the hardest, as upstream exploration and production is reliant upon supportive commodity prices. Brent crude prices averaged $43 per barrel for Total last year, down from $52 per barrel in 2015.

As a result, upstream earnings declined 24% in 2016, while declines were more modest in refining and marketing. Total has deployed several measures to keep itself afloat during the industry downturn. First, it has significantly reduced costs.

In 2016, Total realized cost savings of $2.8 billion in 2016, which was above management’s guidance for $2.4 billion. In addition, Total cut production costs to $5.9 per barrel in 2016, down from $9.90 per barrel in 2014.

Source: 2016 Annual Shareholder Meeting Presentation, page 8

Capital expenditures have been reduced by 30% from 2014-2016, with further reductions in store in 2017 and beyond.

Total has also divested assets deemed non-critical to future growth. One of its larger divestments last year was the $2.3 billion sale of specialty chemicals affiliate Atotech.

Its $10 billion asset sale program is now 80% complete. It has used the proceeds to pay down debt. Total ended 2016 with a gearing ratio of 27%, which is now lower than it was in 2014. As a result, Total is a leaner, more efficient company. Meanwhile, it continues to invest in its most important projects, which positions the company for future growth.

Growth Prospects

Going forward, Total would benefit most from higher commodity prices. As one of the world’s largest oil and gas companies, it would be among the biggest beneficiaries.Total’s earnings would increase by $2.5 billion, for every $10 per-barrel change in Brent crude prices.

This could be a major tailwind for Total—for example, if Brent traded back to $60 per barrel in 2017, it would add approximately $3 billion to its bottom line this year. Of course, this is far outside the company’s control. What it can control—its production and costs—are being effectively managed to position the company for growth.

Total increased total production by 4.5% in 2016. Moving forward, production is expected to grow by more than 4% in 2017, with the goal of 5% annual production growth through 2020. The company has 10 major projects scheduled to start up through mid-2018, which will add to the company’s cash flow.

Conditions have already improved substantially to start 2017. First-quarter adjusted earnings-per-share rose 49% year over year. Upstream production continued to grow by 4% per year, thanks largely to the start-up of the giant Moho Nord field in Congo.

Another growth catalyst for Total over the long-term is liquefied natural gas, or LNG. Total is a major LNG producer, and stands to expand its LNG footprint even further once the $27 billion Yamal LNG project is complete. Total’s Yamal project is a massive undertaking in Russia. Total owns a 20% stake in the project, which is now halfway complete. Once complete, the Yamal project will have more than 200 wells, and three liquefaction trains, each with annual capacity of 5.5 million metric tons

The Yamal project has 4.6 billion barrels of oil equivalent in reserves. Most of the future LNG production has already been sold through long-term, 15- to 20-year contracts, primarily with European and Asian customers.

Dividend Analysis

Investors should consider a few important factors when it comes to Total’s dividend. First, since Total is based in France and pays its dividend in euros, the exact level of income U.S. investors will receive is subject to change, based on currency exchange rates.

This means investors are exposed to currency risk. In times like the present, when the U.S. dollar is strong relative to international currencies, investors will earn less in dividends than if the U.S. dollar were weak. That said, Total is still a high-yielding dividend stock.

Total paid dividends totaling 2.45 euros per share in the past four quarters. Based on prevailing currency exchange rates, this would equal dividends of roughly $2.74 per share in U.S. dollars. The stock has a current dividend yield of 5.3%, which is attractive in a low-yield environment. Total offers more than double the average dividend yield of the S&P 500 Index.

The other major consideration for U.S. investors is withholding tax. Dividends received from companies based in France are typically subject to a 30% withholding tax. Effectively, this reduces Total’s dividend yield to 3.7%, which is still a much higher yield than the S&P 500 Index.

Plus, Total’s dividend has grown rapidly over the years.

Source: Investor Relations

Since 2000, Total’s dividend has nearly tripled. It has not cut its dividend since 1982. And, it has paid either steady or increasing dividends for more than 30 years in a row.

The current environment is difficult for Total, given weak commodity prices, but it generates enough cash flow to pay its dividend. This is the benefit of the integrated structure—steady profit contributions from the downstream segment help keep the dividend intact, even though the upstream segment is struggling.

Final Thoughts

Total is struggling from commodity prices, but it is working aggressively to lower its breakeven point. Thanks to significant cost-cutting, this year Total will be able to cover its growth investments and its dividend at $50 per barrel Brent. If oil remains below this level, Total may have to cut back on growth investments, but its dividend is likely to remain intact.

As a result, Total stock offers investors upside potential if oil and gas prices rise, with a 5% dividend yield that pays investors well to wait for the turnaround.