Salzman, Avi.Barron's (Online); New York (Oct 29, 2020).
Exxon Mobil declined to raise its dividend this year, the first time it's failed to do so since 1982. The move comes as no surprise to most investors. The big question now isn't whether Exxon will raise its dividend, it's whether the company will cut it . The stock has fallen 54% this year, but was up 1.6%, at $32.07, Thursday morning.
Exxon (ticker: XOM) announced late on Wednesday that it will keep its dividend at 87 cents per quarter. Exxon's dividend yield is now 11%, a stunningly high payout for a company long considered a staple of the U.S. economy. It implies that investors expect the company to have to cut it. (When yields rise above 10%, it implies investors are nervous about the dividend.)
If the company does make any decision about cutting the dividend, it may not be until next year. The next board meeting to consider it is scheduled for January. Exxon will report earnings on Friday, and much of the talk among the investment community will likely be about whether the company can hold on to its dividend.
Exxon has boxed itself in somewhat by telling investors it doesn't intend to take on new debt in the near term. The company had relied on debt to fund its capital projects and pay the dividend because it wasn't generating enough cash from operations to pay for both. Without access to the debt markets, Exxon has been cutting expenses, including suspending employee 401(k) matches .
At least one analyst is optimistic that Exxon can continue paying the dividend from its existing debt lines. Paul Sankey of Sankey Research wrote on Thursday that "looking at the high-level debt screen, it can keep paying its dividend from debt."
But Exxon will need some help from oil prices. "It is imperative that the oil market turns though, this is absolutely unsustainable, and the fact that it is unsustainable at $40/bbl is a very bad sign," he wrote.
Sankey has floated the idea that Chevron (CVX) and Exxon floated the idea that Chevron and Exxon should merge , and he believes that an extended period of low prices could make that idea seem more feasible. "Another year of really bad environment, and our Chevron for Exxon Mobil idea may yet have legs," he wrote.
Write to Avi Salzman at email@example.com
Credit: By Avi Salzman