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US Oil Biggies Beat Europe Peers on Dividend Amid Coronavirus
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The global energy business has been battered and several oil companies have declared bankruptcy due to the coronavirus pandemic. Many players opted to slash dividend payments and some decided to reduce headcounts. The measures so long taken were intended to survive the downturn. With weak oil prices and world-wide energy demand still tepid, only those companies will be able to weather commodity-price weakness that can lean on their balance sheet. American oil majors have a less levered balance sheet than European peers, and hence are well positioned to sail though the virus outbreak as well as protect dividend payments.
European Oil Majors’ Dividend Vulnerable to Covid-19
The weak oil pricing scenario owing to the coronavirus pandemic is hurting the overall businesses of big energy players. BP plc (BP - Free Report) — which announced second-quarter results on Aug 4 — reported adjusted loss of $1.98 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The quarterly loss was much wider than the Zacks Consensus Estimate of a loss of 99 cents per ADS. Owing to a drop in oil equivalent production, commodity prices and refining marker margin, the British energy firm’s bottom line also deteriorated from the year-ago earnings of 83 cents per ADS.
BP also announced that it has halved its dividend from 63 cents per ADS to 31.5 cents, given the strain in cash flow stemming from low oil price and relatively more debt laden balance sheet than peers. Royal Dutch Shell plc is another key energy firm that slashed dividend by 66%, citing pandemic-induced gloomy upstream business outlook.
Importantly, BP’s balance sheet is not strong enough — with more debt exposure than the U.S. peers — to combat the pandemic induced-energy business downturn for a long time. Also, with crude prices unlikely to recover fully to pre-pandemic levels in the coming quarters, the British energy giant will continue to witness large cash burn. Owing to this gloomy outlook, BP was convinced to slash dividend in half.
Royal Dutch Shell’s balance sheet is also relatively more debt laden than the U.S. oil biggies. Thus, to provide additional financial flexibility amid the pandemic, the company slashed dividend, thereby reducing annual dividend payments by $10 billion. Last June, it planned to return $125 billion in capital to stockholders from 2021 through 2025. However, with the recent cut in dividend and the stock repurchase program suspension, although for a short term, Royal Dutch Shell is likely to return considerably lower cash than planned, as opined by many analysts.
U.S. Oil Biggies’ Dividend More Resilient to Pandemic
The U.S. oil biggies, with very strong balance sheet, are better placed than European peers to combat the pandemic. With considerably lower debt exposure, Chevron Corporation (CVX - Free Report) is less vulnerable to the virus-led energy downturn and hence, is in a better position to protect dividend. The company last raised its dividend in January 2020 by 8%. However, owing to low crude pricing scenario, the company has suspended further share repurchases and is unlikely to increase dividend till there is a rebound in commodity prices.
Exxon Mobil Corporation (XOM - Free Report) , another energy giant with headquarters in Irving, TX, also has a strong balance sheet, on which the company can rely on to combat the pandemic. In late July, the integrated energy firm announced that it has kept its third-quarter dividend unchanged with the second-quarter level. However, due to ExxonMobil’s huge counter-cyclical capital spending program, which has been deteriorating its cash flow generation capabilities, the company may need to compromise balance sheet strength in the medium term. Once its balance sheet strength gets compromised, ExxonMobil may be compelled to lower dividend, as believed my most of the analysts. However, some analysts believe that the company is unlikely to take a rash step to lower dividend in the near term since it has a long track record of increasing dividend.
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US Oil Biggies Beat Europe Peers on Dividend Amid Coronavirus
The global energy business has been battered and several oil companies have declared bankruptcy due to the coronavirus pandemic. Many players opted to slash dividend payments and some decided to reduce headcounts. The measures so long taken were intended to survive the downturn. With weak oil prices and world-wide energy demand still tepid, only those companies will be able to weather commodity-price weakness that can lean on their balance sheet. American oil majors have a less levered balance sheet than European peers, and hence are well positioned to sail though the virus outbreak as well as protect dividend payments.
European Oil Majors’ Dividend Vulnerable to Covid-19
The weak oil pricing scenario owing to the coronavirus pandemic is hurting the overall businesses of big energy players. BP plc (BP - Free Report) — which announced second-quarter results on Aug 4 — reported adjusted loss of $1.98 per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The quarterly loss was much wider than the Zacks Consensus Estimate of a loss of 99 cents per ADS. Owing to a drop in oil equivalent production, commodity prices and refining marker margin, the British energy firm’s bottom line also deteriorated from the year-ago earnings of 83 cents per ADS.
BP also announced that it has halved its dividend from 63 cents per ADS to 31.5 cents, given the strain in cash flow stemming from low oil price and relatively more debt laden balance sheet than peers. Royal Dutch Shell plc is another key energy firm that slashed dividend by 66%, citing pandemic-induced gloomy upstream business outlook.
Importantly, BP’s balance sheet is not strong enough — with more debt exposure than the U.S. peers — to combat the pandemic induced-energy business downturn for a long time. Also, with crude prices unlikely to recover fully to pre-pandemic levels in the coming quarters, the British energy giant will continue to witness large cash burn. Owing to this gloomy outlook, BP was convinced to slash dividend in half.
Royal Dutch Shell’s balance sheet is also relatively more debt laden than the U.S. oil biggies. Thus, to provide additional financial flexibility amid the pandemic, the company slashed dividend, thereby reducing annual dividend payments by $10 billion. Last June, it planned to return $125 billion in capital to stockholders from 2021 through 2025. However, with the recent cut in dividend and the stock repurchase program suspension, although for a short term, Royal Dutch Shell is likely to return considerably lower cash than planned, as opined by many analysts.
U.S. Oil Biggies’ Dividend More Resilient to Pandemic
The U.S. oil biggies, with very strong balance sheet, are better placed than European peers to combat the pandemic. With considerably lower debt exposure, Chevron Corporation (CVX - Free Report) is less vulnerable to the virus-led energy downturn and hence, is in a better position to protect dividend. The company last raised its dividend in January 2020 by 8%. However, owing to low crude pricing scenario, the company has suspended further share repurchases and is unlikely to increase dividend till there is a rebound in commodity prices.
Exxon Mobil Corporation (XOM - Free Report) , another energy giant with headquarters in Irving, TX, also has a strong balance sheet, on which the company can rely on to combat the pandemic. In late July, the integrated energy firm announced that it has kept its third-quarter dividend unchanged with the second-quarter level. However, due to ExxonMobil’s huge counter-cyclical capital spending program, which has been deteriorating its cash flow generation capabilities, the company may need to compromise balance sheet strength in the medium term. Once its balance sheet strength gets compromised, ExxonMobil may be compelled to lower dividend, as believed my most of the analysts. However, some analysts believe that the company is unlikely to take a rash step to lower dividend in the near term since it has a long track record of increasing dividend.
Both Chevron and ExxonMobil currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>