ExxonMobil's (NYSE:XOM) shares were down about 5% by 3:00 p.m. EDT on Thursday. Weighing on the oil stock were lower oil prices and a report that it's about to make deep cuts to preserve its dividend.
Today, oil prices were under pressure with West Texas Intermediate (WTI), the main U.S. oil benchmark, closing the trading day down about 3.3%. That pushed WTI below $40 a barrel, which was the first time it breached that level in about three weeks. The main issue weighing on oil was the continued rise in COVID-19 cases, sparking fears that governments will enact new shutdowns. That would impact transportation, which accounts for about two-thirds of global oil demand.
Another factor weighing on ExxonMobil's stock today was a report by Reuters that it's planning to make deep spending and job cuts to preserve its dividend. The company currently pays out $15 billion per year via a dividend that now yields an eye-popping 8.3%. While Exxon plans to cut spending to maintain its dividend, it still might not generate enough cash to cover the payout this year, given where oil prices are these days. That's a concern because it means the company will need to borrow money, which could put its balance sheet at risk. That's not sustainable, which has an Edward James analyst suggesting that a dividend cut is "a real possibility in 2021."
Exxon is trying hard to maintain its big-time dividend. However, it can't rely on spending cuts and its balance sheet to bridge the gap forever. Because of that, its big-time yield is on shaky ground until oil prices improve.