Oil crash leaves Exxon, Chevron dividends safe -- for now

The dividends are safe 'until they have no other choice.”

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The oil market has been flattened by the one-two punch of the Saudi Arabia-Russia price war and the COVID-19 pandemic, putting the prized dividends of oil majors ExxonMobil and Chevron at risk.

West Texas Intermediate crude oil, the U.S. benchmark, has plunged by 63 percent since Jan. 6, dragging down shares of Exxon Mobil and Chevron by 52 percent and 48 percent, respectively.

Crude's slide prompted Chevron on Tuesday to follow the lead of European rival Royal Dutch Shell, announcing plans to slash capital spending by 20 percent and halt its share-buyback program. ExxonMobil has not yet made a similar move.

TickerSecurityLastChangeChange %
CVXCHEVRON CORP.68.78-7.60-9.95%
XOMEXXON MOBIL CORPORATION36.95-1.87-4.82%

“We're taking the action now to conserve cash," Chevron CEO Mike Wirth told FOX Business’ Maria Bartiromo on Tuesday. “We've been in these circumstances before. We know what actions to take, and we’re taking them.”

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San Ramon, California-based Chevron pays a $1.19-per-share quarterly dividend, representing a yield of 7.42 percent on its stock price, according to FactSet.

Irving, Texas-based Exxon, which dishes out $14.7 billion in dividends annually, the third-highest among S&P 500 companies, according to S&P Global, pays an 87 cent-per-share dividend, good for a yield of 10 percent. The U.S. 10-year Treasury note was yielding 0.84 percent on Tuesday.

“What they're doing is everything short of cutting the dividend,” Stewart Glickman, senior equity analyst at CFRA, told FOX Business. “Growth investors fled energy a long time ago, and what you have left is income investors. So I think they're saving the dividend for as long as they possibly can until they have no other choice.”

Chevron’s capex cuts and suspension of buybacks are likely aimed at keeping the company from going free cash flow-negative, which Glickman said was a possibility if both that spending and the dividend were maintained. Exxon may face a similar risk.

Both companies have strong balance sheets that would allow them to borrow enough money to fund the payouts for a couple of years if needed, Glickman said.

As for their share prices, which have been mauled this year, Glickman says they will likely track the price of crude right now.

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“With oil as weak as it is, ultimately it's going to come down to the news flow coming off of COVID-19,” he said, adding that a truce between Saudi Arabia and Russia would be a “nice shot in the arm.”