At first glance, it seems like Exxon Mobil Corporation (NYSE:XOM) is past the brunt of oil’s 2014 meltdown. Though, clearly, there’s still plenty of recovery work to be done, for the first time there’s a light at the end of the tunnel. However, for those faithful investors who are counting on the Exxon stock dividend to not just persist, but also rise… well, that’s anything but a sure thing at this point.
While earnings have been better than the payout per share of XOM stock over the course of the past couple of quarters, the difference between the two remains paper thin. And, if oil doesn’t stage the expected recovery, the thin difference between what the company’s earning and what it’s giving back to investors in the form of dividends could evaporate altogether.
One simple chart tells the whole story.
A Faux Recovery?
The crude oil rhetoric, for a change, had been leaning bullishly. With the impact of two major hurricanes now in the rear-view mirror and crude stockpiles in the United States starting to dwindle again — albeit erratically — investors were comforted by the EIA’s slight increase in next year’s oil price outlook. Its average 2018 price outlook of $54.07 for Brent crude is only a little more than the current price for a barrel of oil; it’s a price that’s firm enough to keep most oil operators in the black.
Just as the skies seemed to be clearing, however, OPEC asked U.S. shale oil producers to crimp off the spigots. At the recent India Energy Forum organized by CERAWeek and held in New Delhi, OPEC’s Secretary General Mohammed Barkindo commented, “We urge our friends in the shale basins of North America to take this shared responsibility with all seriousness it deserves, as one of the key lessons learnt from the current unique supply-driven cycle.”
Yes, this is the same OPEC that, back in 2014, wasn’t the least bit interested in doing U.S. producers any favors by curtailing their own output. The pain has lingered far longer than Barkindo and company likely planned.
It’s also a tacit sign of just how far away a full recovery of the oil market may be. Perhaps the EIA’s 2018 price outlook of $54 per barrel is too bold. If that is, indeed, the case, the Exxon stock dividend could be in trouble.
Pictures Tell the Tale
In its most recent reported quarter, Exxon Mobil earned 78 cents per share, and gave 77 cents of it right back to owners of XOM stock in the form of a dividend.
It was something of an outlier quarter, to be fair. In Q1, operating income of 95 cents per share of Exxon stock was considerably better than the 75-cent dividend the company dished out. And both were better than the state of affairs from a year earlier, when the dividend exceeded earnings… by a lot. Trajectory-wise, Exxon Mobil looks and feels on track.
There’s little margin for error, though, as the graphic of the company’s past and projected fiscal results depict.
The payout ratio is — or was, anyway — projected to fall going forward on the heels of profit growth that outpaced dividend growth. For instance, the expected profit of 98 cents per share for the second quarter of 2018 is well in excess of the expected 80-cent Exxon stock dividend for the same quarter; that’s the widest difference seen since 2015. However, that was an outlook predicated on an oil price that OPEC just tacitly said may be too optimistic.
Bottom Line for Exxon Stock Dividend
Just for the record, Exxon Mobil is hardly alone in this light. Rivals like BP plc (ADR) (NYSE:BP) and Chevron Corporation (NYSE:CVX) are also struggling to afford the dividends they’re paying — and their outlooks are also predicated on an oil price rebound that may or may not be in the cards.
Being in good company doesn’t make things any easier for current and would-be owners XOM stock, though. Should oil remain suppressed — or even slide back, thanks to the overproduction OPEC now fears — Exxon’s going to have some tough decisions to make.
Asset sales and borrowing aren’t long-term solutions to maintaining a dividend the company can barely afford as it is.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
