Shares of many energy companies — and their dividends — took a big hit earlier in the pandemic, even the big ones. The global economy contracted along with oil and gas prices, forcing many oil companies to conserve capital.
Hence a wave of dividend cuts across the energy sector, at the expense of income investors.
(point: HAL) and
(OXY) are just a few of the big names that made such cuts.
We searched for energy companies in
that raised their dividends earlier in the pandemic, namely in 2020 and 2021. The ability to raise a dividend during such a difficult period is a good starting point for how well a company can withstand such periods and have the means to continue to grow the payments.
Among the 21 energy companies in the S&P 500, only about half managed to pay a higher dividend than the previous year in 2020 and 2021. That was the first step in a recent stock screen Barron’s i ran
We added another criterion: the company’s capitalization had to be over $50 billion. This ultimately narrowed down the list of eligible companies
Pioneering Natural Resources
Energy companies in general, even if they didn’t make this list, have paid more attention to returning capital to shareholders.
While the price of oil has “corrected from the highs, [energy companies] They’re all still making a lot of money, and they’ve taken that money to give back to shareholders in dividend increases, buybacks and special dividends,” says Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors.
|Company / Ticker||Recent price||Recent performance||YTD Return||Market value (billion)|
|Exxon Mobil / XOM||$94.95||3.7%||60.0%||$395.7|
|Chevron / CVX||157.12||3.6||37.7||307.6|
|ConocoPhillips / COP||108.63||1.7||54.2||138.3|
|Pioneer Natural Resources / PXD||238.99||9.8||42.0||57.0|
Notes: Data as of September 6
Some companies narrowly missed the list Barron’s was drafted. If a company simply maintained its dividend in 2020, for example, it was not included, as we wanted to see increases in 2020 and 2021.
For a while, it looked like Exxon Mobil wasn’t going to raise its dividend in 2021. It announced a quarterly dividend increase in April 2019, raising the payout to 87 cents per share from 82 cents.
The company didn’t raise it in 2020, although the total it paid for the calendar year, $3.48 per share, was slightly higher than the prior year’s figure of $3.43. Its quarterly dividend of 87 cents per share, announced in April 2019, allowed the 2020 payout to exceed the previous year’s total by 5 cents.
This also allowed Exxon to remain in the
S&P 500 Dividend Aristocrats Index,
whose members have paid a higher dividend for at least 25 consecutive years.
In 2021, the company paid $3.49 per share in dividends, compared to $3.48 the previous year. It raised its quarterly dividend by a penny to 88 cents a share last fall.
Earlier in the pandemic, however, there was concern that the energy giant could cut its dividend as it was not generating enough free cash flow to cover the payout.
In October 2020, for example, the stock on a trailing 12-month basis returned more than 10%, according to FactSet. However, it has since declined significantly, helped by much stronger energy prices. The stock now yields about 3.7%—still attractive but well below risk levels.
Another energy giant, Chevron, has never had as big a rise in Exxon Mobil’s dividend yield — though it rose to about 7% in October 2020. The company paid a dividend of $5.31 per share last year, up 3% from 2020 levels.
Due to the volatility of their earnings in recent years, some energy companies now pay variable dividends as a way to offset their capital return policies.
In May, for example, ConocoPhillips announced an ordinary dividend of 46 cents per share and a variable cash dividend of 30 cents per share. The company is among the exploration and production companies, which are usually not as large and global as the do-it-all giants like Exxon and Chevron.
Another E&P company, Pioneer Natural Resources, also uses a variable base plus dividend structure. That helped boost the total payout to $6.83 per share last year, up from $2.20 in 2020.
The stock recently returned 9.8%, the highest of the four companies highlighted by this screen.
A Morgan Stanley research note on Aug. 29 notes that Pioneer is committed to investing 65% to 75% of its cash flow in capital expenditures but keeping production growth at 5%.
“The company intends to increase its basic dividend while distributing a cash windfall through a variable dividend,” the note said.
Big energy companies like these four are sure to have their ups and downs, especially if a recession follows. But they have shown in recent years that their dividends are quite resilient, even in difficult conditions.
Write to Lawrence C. Strauss at email@example.com