24/7 Wall St. has been tracking companies that raise their dividends for quite some time. This week both oil giants Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) are reporting earnings. We expect both companies to raise their respective dividend rates. Our take is that Exxon is under more pressure to raise its payout than Chevron, and we will show why and by how much.
Exxon Mobil Corp. (NYSE: XOM) is set to report earnings on Thursday, April 25, 2013, and we expect a dividend hike to come along with the report or in the days shortly thereafter. Its annual meeting of shareholders is not being held until on Wednesday, May 29, 2013, but we expect the announcement to come in ahead of that meeting.
Rex Tillerson was quoted about the dividend in a question at the Exxon Mobil 2013 Analyst Meeting on March 6, 2013 (full summary). He said:
As someone commented to me earlier this morning, the share price increased and send it (the dividend yield) back where it was, so that’s not a bad problem to have. But we are evaluating again the appropriate dividend, whether we’re going to have an increase. If we do, how large will it be, and that’s something that the board will discuss, and so it would be inappropriate for me to say much about it when I’ve not even had a conversation with my own board about it to this point. But we are very mindful of it.
Keep in mind that last year was said to be the 30th year of a dividend hikes.
Chevron Corp. (NYSE: CVX) is having its first-quarter earnings conference call on Friday, April 26. At the company’s analyst meeting in March, Chevron said that it has raised its dividend for the 25th consecutive year. In its summary of that meeting, the CFO said:
Our first priority is to maintain and grow our dividend. Our actions demonstrate this commitment. Our second priority is reinvesting in the business, and the high quality projects to sustain and grow our firm and create tremendous values for our shareholders. … We’ve also said dividends are number one use of cash. We have a long pattern of growing out those dividends. We should expect that to continue for as long as the earnings and the cash flows are there. That’s a very important component.
Our take is that Chevron will raise its dividend, but we think that Exxon Mobil is under pressure to raise its dividend by more than Chevron. The reason is simple: Chevron currently yields 3.06% while Exxon Mobil only yields 2.55%.
The pressure is on for higher dividends, but there is more pressure on Exxon Mobil. Our hope is that Exxon Mobil will raise the dividend from $0.57 per share per quarter to as much as $0.65. With Chevron having a higher dividend, and with it already being at $0.90 per share per quarter, our take is that the hike is likely to go to, say, $0.95 or so.
As a reminder, these dividend hikes do matter, even if they are expected. Both companies are mega-cap stocks, but both also are very highly weighted Dow Jones Industrial Average stocks, as well as the index is a share price-weighted index rather than a market cap weighted one. IndexArb.com shows that Chevron is the second weighting behind IBM, at 6.13%, and Exxon Mobil is ranked as number six of 30, with a 4.66% weighting.
These two components have a combined 10.79% weighting, according to IndexArb.com, versus what would be only 6.66% weighting if these were done in equal weightings among all DJIA components.
Last year we noticed that Chevron was very quick to one-up Exxon on the dividend. Exxon’s was a 21% hike against an 11% hike by Chevron.