The global pandemic has left oil prices at levels that make it very hard for energy companies to turn a profit. However, not all of the names in the space are made of the same stuff. For example, France's Total (NYSE:TOT) thinks it can handle the headwinds and adjust its business to deal with what it expects to be a very different long-term energy future. Here's what you need to know.

It's up to the board

One of the most important things to understand about dividends is that the choice to pay -- and at what level -- is entirely up to the board of directors. There's no way for an investor to really know whether or not a dividend will be maintained, though there are some key things one can examine to get a feel for what may happen. That said, Total's board has been very clear about its position on the dividend. 

A man in front of wind turbines.

Image source: Getty Images.

During Total's second-quarter-2020 earnings conference call, CEO Patrick Pouyanne explained, "the Board reaffirms the sustainability of this level of the dividend in a $40-per-barrel-Brent environment." He reiterated that stance when the company held its investor day in late September, with the goal of showing investors how the oil giant planned to shift with the global energy markets while maintaining its dividend -- even with oil at $40 per barrel. In other words, the board has set a very clear line in the sand on the dividend, and it's $40-per-barrel oil. Oil is currently hovering in the $40 area. 

That said, one of the key factors the company highlighted was the strength of its balance sheet. There's an important caveat here, however, because if you consider simply debt to equity, Total's balance sheet doesn't look all that great with a ratio of around 0.77 times. However, like many of its European peers, Total carries a material amount of debt and a material amount of cash. To put a number on that, Total's debt at the end of the second quarter was roughly $78 billion. However, its net debt, taking into consideration its cash position, was just $41 billion or so. So the company's net debt to equity ratio is a far more reasonable number, at roughly 0.28 times, according to the company. 

What about the future?

Net debt isn't exactly the same thing as low debt, so investors need to take that number with a grain of salt. However, it is also pretty clear that the oil giant is hardly in a financially troubling spot today. So investors looking at Total's hefty 9.3% dividend yield shouldn't run for the hills. So long as oil doesn't plunge again, and stay there, long-term dividend investors are probably safe to take the board at its word.

TOT Debt to Equity Ratio Chart

TOT Debt to Equity Ratio data by YCharts

However, there's another wrinkle that investors need to consider. One of the big stories in the broader energy sector is that oil is being displaced by cleaner alternatives, like solar and wind power. This is definitely true, but the transition away from oil is likely to be a long process. Oil took 100 years to displace coal as the most important global energy source. With all of the current infrastructure in place and the amount of infrastructure needed to shift to clean energy/electricity, it's likely to be many decades before oil is out of the mix.

While that is Total's stance, it has also made a commitment to change along with the times.  And it's already begun doing just that, focusing on building an electric business to complement its integrated oil and natural gas operations. The goal is to maintain its oil and gas business, upgrading its production along the way so it can compete even if oil prices remain low. At the same time, the company will be putting as much as 20% of its annual capital investment budget toward clean energy. 

Essentially, Total is using its oil foundation to create a new business, slowly, over time. The near-term goal is to generate around 15% of sales from "electrons" by 2030, up from 5% in 2019. It is a prudent plan, and one that should ease the concerns of long-term investors that think energy companies risk getting left behind in the clean energy future. 

Worth a closer look

Total has its warts, but it has made very clear where it stands on the dividend -- and, just as important, where it stands on the long-term transition to clean energy that is taking place in the world today. On both fronts it looks like Total is making reasonable choices. If you are looking for bargains in the oil patch, Total appears to be an interesting way to play the space, while still hedging your bets for the long-term future.