What happened

Shares of Chevron (CVX -0.14%) plummeted 22.4% in March, according to data provided by S&P Global Market Intelligence. To put that decline into perspective, the oil giant lost a jaw-dropping $80 billion in market value last month. The main factor driving down its stock was a stunning crash in crude oil prices.  

So what

Oil prices plummeted 50% last month due to dual shocks to supply and demand. Consumption is cratering because of the COVID-19 outbreak, which is shutting down the global economy. Meanwhile, supplies are on the rise due to the breakup of Russia's production reduction agreement with OPEC. 

Silhouette of an offshore drilling rig at sunset.

Image source: Getty Images.

The significant slump in oil prices forced oil companies like Chevron to abruptly shift course to shore up their financial situations. The company held its annual analyst day at the beginning of the month. At the time, it expected to spend $19 billion to $21 billion on capital projects per year through 2024, which would support its ability to distribute $75 billion to $80 billion in cash to its investors over the next five years via dividends and its share repurchase program. 

However, with oil prices in a free fall, the company abandoned that plan midway through the month. It reduced its 2020 capital budget by $4 billion, expected to cut its operating costs by $1 billion, and suspended its share repurchase program. Those moves would enable the company to protect its dividend, which is its top priority. 

Now what

With oil prices falling into the low $20s, Chevron's dividend is on shaky ground, which is why its yield has soared above 6% in recent weeks. While the company hopes to maintain that payout by cutting other costs, it will eventually need oil prices to bounce back into at least the $40s. Because of that, dividend investors might want to avoid buying Chevron for its payout until there's a bit more stability in the oil market.