Oil and natural gas are commodities prone to dramatic price shifts, like the one that has happened over the past couple of years. That leads to big profit swings at companies like European integrated energy giants BP (BP 0.26%), Shell (SHEL 2.47%), and TotalEnergies (TTE +0.00%). Of this trio, TotalEnergies stands out for its dividend performance. Here's what you need to know as you watch this energy giant's peers hike dividends aggressively.
The bad times
When the coronavirus pandemic hit in 2020, countries around the world effectively shut their economies down. That resulted in a severe decline in demand for oil and natural gas. Since these energy sources are commodities, the price fell to historic lows and took the prices of energy companies with them.
NYSE: TTE
Key Data Points
The energy industry's largest players, the integrated energy giants, reacted in very different ways. ExxonMobil (XOM 0.25%) and Chevron (CVX +0.05%) chose to stick with their core drilling model while using their balance sheets to sustain dividends and capital spending amid low energy prices. That's basically the approach they have taken for years.
BP and Shell, meanwhile, chose to announce major business shifts. Both of these companies explained that they would materially increase their exposure to clean energy while reducing their exposure to carbon fuels. Since these changes amounted to major business resets, both BP and Shell cut their dividends.
TotalEnergies cut the middle. It announced that it was going to increase its exposure to clean energy while continuing to grow its core energy business. And notably, it planned to protect its dividend, unlike its European peers Shell and BP, because it recognized how important the dividend was to investors.
A look at today
Now that oil prices have recovered, oil companies are gushing profits. That's led Shell to increase its dividend four times since cutting it in 2020. The dividend has gone from $0.32 per share to $0.50 per share, for a total increase of around 56%. For its part, BP just announced a 10% increase in its dividend, backed by strong second-quarter results.
NYSE: BP
Key Data Points
TotalEnergies, meanwhile, announced a 5% dividend hike earlier in 2022. That seems a bit meager when you compare it to what BP and Shell have done on the dividend front. But it needs to be put into a larger context. Notably, TotalEnergies isn't working back from a dividend cut. It has nothing to prove to investors and no need to regain investor trust, as Shell and BP do.
NYSE: SHEL
Key Data Points
Meanwhile, TotalEnergies is using the strong oil market to return value to shareholders in different ways. First off, it is buying back stock, which is a return of cash that doesn't require an ongoing financial commitment like a dividend increase. And then there are the investments TotalEnergies is making to grow its business, with a particular focus on clean energy. This list of capital investments and purchases it has made over the past year or so is too long to recount, but it is clearly acting quickly to live up to its clean energy promise while still growing its carbon energy business (with a focus on natural gas investments).
No need to impress anyone
Basically, management is doing exactly what it said it would when energy prices were low. And now that oil prices are high, it has room to pick up the pace. The dividend, meanwhile, never became a problem and, thus, doesn't need to be addressed in the same way as it does at European peers like BP and Shell. Notably, both Exxon and Chevron, which supported their dividends through the pandemic as well, have both had more modest dividend hikes, too. With a hefty 5.5% dividend yield (foreign taxes and fees have to be paid on this), TotalEnergies may be a good fit if you prize dividend consistency and believe renewable power is going to be an important part of the energy future.
