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Will ExxonMobil Cut Its Dividend?

By Dan Caplinger - Mar 24, 2020 at 8:35AM

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The oil major has a long streak of dividend growth, but some fear the coronavirus outbreak could lead to a cut.

The 2019 coronavirus disease pandemic has had a huge impact on the global economy. Many blame the outbreak for the fight between Russia and OPEC that precipitated a massive sell-off in the crude oil markets, with prices falling as low as $20 per barrel. At those prices, even giants of the industry like ExxonMobil (XOM 0.98%) have seen their businesses come under considerable pressure. Exxon's stock is down about 55% just in 2020 alone, and it's been in a downward trend for several years now.

As a blue chip stock and a component in the Dow Jones Industrial Average, ExxonMobil has a wide following among investors. The oil giant is also a dividend stock favorite, because it has a long history of not only paying dividends consistently but also raising its payout amounts over time. With the coronavirus threat here, however, companies across the economy are looking at cutting their dividends. Facing a vulnerable situation, ExxonMobil has some people worried about the fate of its quarterly payout. With that in mind, we'll look below at ExxonMobil's history of dividend payments and whether current concerns are warranted.

Dividend stats on ExxonMobil

Metric

Current Stat

Current quarterly dividend per share

$0.87

Current yield

10.6%

Number of consecutive years with dividend increases

37 years

Payout ratio (2020 estimated EPS)

188%

Last increase

May 2019

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

A dividend growth dream

ExxonMobil has been able to increase its dividend every year dating back to the 1980s. That period encompasses some massive fluctuations in the oil and natural gas markets, including the following:

  • The first Gulf War in 1990 sent the price of oil soaring, but it also created considerable uncertainty about the safety and reliability of energy assets that ExxonMobil and its peers had in the Persian Gulf region.
  • Following the Gulf War, oil prices slumped throughout much of the 1990s, bottoming out at just over $10 per barrel in 1998.
  • Prices then climbed throughout much of the 2000s, eventually hitting $145 per barrel by early 2008.
  • The Great Recession sent prices plunging to around $30 per barrel, losing 80% of its value in just a matter of months.
  • Oil prices returned to triple digits in the early 2010s, only to fall again and largely remain low from 2015 to the present day.

Yet even with all these perturbations in the energy markets, ExxonMobil's dividend hasn't wavered. The company has found ways to weather price declines while still delivering good-sized payout hikes, with the most recent boost last year taking the quarterly payout from $0.82 to $0.87 per share. In the past decade, ExxonMobil's quarterly dividend amount has more than doubled.

Logos for Exxon and Mobil.

Image source: ExxonMobil.

Now that's not to say that shareholders haven't felt the impact of industry downturns. In 2012, amid strong conditions in the oil markets, ExxonMobil gave its investors a 21% payout boost. By contrast, in 2016, when oil was down, the annual increase was just 3%. Nevertheless, there's never been much question that the company would deliver at least some dividend increase -- much less actually have to cut its payout.

The trouble ahead

Yet as with many companies facing the coronavirus pandemic, this could be an unprecedented situation for ExxonMobil. Those watching the oil company have slashed their earnings estimates for this year and next, with a more than 50% decline in 2020's bottom-line projection. That has ExxonMobil paying out almost twice the earnings that it's bringing in -- and on pace to keep outspending its net income at least through 2021.

Oil companies do have considerable noncash expenses that hit their earnings, making it important also to look at other measures. However, free cash flow has also sunk lately, going from $16.4 billion in 2018 to just $5.4 billion in 2019. Much of that came from massive capital spending that ExxonMobil now expects to cut, but it's still a danger sign.

Should you believe ExxonMobil?

For the company's part, ExxonMobil has emphasized its determination to keep boosting its dividend payments. Last year, it borrowed money to finance the payout, and it's likely to do so again this year and next if it needs to despite its cost-cutting measures. Yet the company just got a credit downgrade from bond rating agencies, and that shows that its borrowing capacity has limits.

At this point, dividend investors can expect ExxonMobil to do everything it can to avoid cutting its dividend. Whether it's successful depends on how long oil prices remain at rock-bottom levels and whether the company can keep borrowing as necessary to support its payouts. If conditions deteriorate far enough to stop that, then ExxonMobil could find itself forced to make the dividend cut it so badly wants to avoid.

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Exxon Mobil Corporation Stock Quote
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XOM
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