So far in 2013, refiners have managed to keep the profits rolling in, but those profits are getting slimmer as the spread between West Texas Intermediate (WTI) and Brent grades of crude oil narrows. The producers feel the pinch from lower realized prices per barrel, the services firms feel the pinch as fewer wells are drilled and the refiners no longer benefit as much.

Natural gas producers have begun to see an improvement in pricing, from around $3.20 per thousand cubic feet at the beginning of the year to more than $4.00 last week. That is a boost of 25%, and some analysts think that price could double by the end of this year.

Here is our latest take on some of the major players in the oil and gas sector.

Integrated Major Oil and Gas Companies, Plus One

Exxon Mobil Corp. (NYSE: XOM) closed at $92.21 last night and has a market value of about $410 billion. The consensus target price from Thomson Reuters is around $94.30, and the 52-week range is $77.13 to $93.67. Exxon has a dividend yield of 2.7%. The implied upside to the consensus target is a scant 2.3%, and note that the target price is above the 52-week high.

Chevron Corp. (NYSE: CVX) closed at $124.93 last night and has a market value of about $242.2 billion. The consensus target price is around $129.50, and the 52-week range is $95.73 to $126.98, a new high set yesterday. Chevron has a dividend yield of 3.2%. The implied upside to the consensus target is just 3.66%, and the target price is above the 52-week high.

BP PLC (NYSE: BP) closed at $43.30 last night and has a market value of about $138.2 billion. The consensus target price is around $51.40, and the 52-week range is $36.25 to $45.45. BP’s dividend yield is about 5%. The implied upside to the consensus target is 18.7%, and note that BP’s target price also is above the 52-week high.

Continental Resources Inc. (NYSE: CLR) closed at $84.44 last night and has a market value of about $15.5 billion. The consensus price target is around $101.70, and the 52-week range is $61.02 to $93.99. Continental pays no dividend. The implied upside to the consensus target is above 20%, and the target price is well above the 52-week high.

We thought it might be instructive to toss Continental Resources into the mix because it is the largest producer in the Bakken oil shale play. As a valuation play, it offers an upside that is stronger than even BP’s, without the drag that BP still gets from any remaining liability for the April 2010 Gulf of Mexico disaster. The downside for Continental is high expectations — the company is expected to grow revenues by nearly 50% in 2013. The major upside is the narrowing gap between WTI and Brent crude varieties and added rail transportation out of the Bakken.

Forced to choose between BP and Continental, we would go with Continental, even absent a dividend. Share price growth potential is more likely than at BP, and the share price only has to rise by a little more than $2.00 to make up for the forgone dividend. Share price appreciation at BP is much more problematic.

Natural Gas Producers

Chesapeake Energy Corp. (NYSE: CHK) closed at $21.10 yesterday and has a market value of about $14.1 billion. The consensus target price is $22.45, and the 52-week range is $14.45 to $22.97. Chesapeake’s dividend yield is 1.7%. The implied upside to the consensus target is about 6.4%, and the target price is only slightly below the 52-week high.

EOG Resources Inc. (NYSE: EOG) closed last night at $130.93 and has a market value of about $35.6 billion. The consensus price target is about $155.25. The 52-week range is $82.48 to $139.00. EOG has a dividend yield of 0.6%. The implied upside to the consensus target is 18.5%, and the target price is well above the 52-week high.

These two companies rank second and third behind Exxon in natural gas production. Higher natural gas prices in 2013 represent the view of virtually every energy expert in the country. On valuation alone, EOG holds the inside track among these producers. It simply takes too much growth for Exxon to move the needle, and even though Chesapeake has a new chief executive officer with a solid background in operations, he will not join the company until next month and is likely to have only a limited impact on this quarter’s performance.

Oil Field Services

Schlumberger Ltd. (NYSE: SLB) closed last night at $75.58 and has a market value of about $100 billion. The consensus price target from Thomson Reuters is $90.50, and the 52-week range is $59.12 to $82.00. Schlumberger has a dividend yield of 1.7%. The implied upside to the consensus target is about 19.7%, and the price target is well above the 52-week high.

Halliburton Co. (NYSE: HAL) closed at $44.02 last night and has a market value of about $41 billion. The consensus target price is $51.00, and the 52-week range is $26.28 to $45.75. Halliburton’s dividend yield is 1.1%. The implied upside to the consensus target is 15.9%. Again the target price is well above the 52-week high.

Baker Hughes Inc. (NYSE: BHI) ended yesterday at $47.40 and has a market value of about $21.2 billion. The consensus target price is $50.65, and the 52-week range is $37.08 to $50.97. Baker Hughes has a dividend yield of 1.3%. The implied upside to the consensus target is about 6.9%, and the target price is above the 52-week high.

National Oilwell Varco Inc. (NYSE: NOV) closed last night at $69.17 and has a market value of about $30 billion. The consensus target price is $82.65, and the 52-week range is $59.07 to $89.95. National has a dividend yield of 0.8%. The implied upside to the consensus target is 19.5%, and the price target is below the 52-week high.

Transocean Ltd. (NYSE: RIG) closed at $52.31 last night and has a market value of about $19 billion. The consensus price target is $61.00 and the 52-week range is $39.32 to $59.50. Transocean does not pay a dividend (it will pay a special, one-time dividend of $2.24 a share in four equal quarterly installments beginning in June). The implied upside to the consensus target is 16.6%, and again the price target is above the 52-week high.

Ensco PLC (NYSE: ESV) closed last night at $62.35 and has a market value of about $14.8 billion. The consensus target price is around $68.00, and the 52-week range is $41.63 to $65.82. Ensco has a dividend yield of 3.2%. The implied upside to the consensus target is about 9%, and again the price target is above the 52-week high.

Of the services firms, Schlumberger and Transocean currently trade lower today than they did when we last surveyed these companies in February. Ensco trades essentially flat. The rest have posted share price gains that have cut implied gains significantly. National Oilwell Varco remains the choice here, partly because its price target is considerably below its 52-week high. The shares have plenty of room to run.

Refiners

Valero Energy Corp. (NYSE: VLO) closed last night at $40.53 and has a market value of about $22.1 billion. The consensus target price from Thomson Reuters is $47.90, and the 52-week range is $18.28 to $44.76. Valero has a dividend yield of 1.9%. The implied upside to the consensus target is 18.2%, and the price target is above the 52-week high.

Phillips 66 (NYSE: PSX) closed at $65.39 last night, and it has a market value of about $40.5 billion. The consensus price target is $72.15, and the 52-week range is $29.25 to $70.52. Phillips 66 has a dividend yield of 1.9%. The implied upside to the consensus target is 10.3%, and again the price target is above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) ended yesterday at $82.45 and has a market value of about $26.8 billion. The consensus price target is $95.27, and the 52-week range is $33.65 to $92.73. Marathon’s dividend yield is about 1.7%. The implied upside to the consensus target is about 15.5%, and again the price target is above the 52-week high.

Refiners are beginning to feel the pinch as prices for WTI crude narrow the spread to Brent crude. In February that spread was $21 a barrel, and these refiners were able to source their feedstocks from the much cheaper U.S. barrels. The spread has now narrowed to around $8 a barrel, shaving away the bulk of the refiners’ profitability.

Phillips 66’s margin at its mid-continent refineries in the first quarter was $27.29 a barrel, and its worldwide margin came in at $13.94 a barrel, higher than either Valero or Marathon. Phillips 66 stands to be the last of the big refiners to lose any margin to the closing spread between WTI and Brent.

Some Observations

Production was lower at all the major integrated companies last quarter, and given the slowing demand and high inventory levels, there is no reason to expect a big spurt in production this year. Prices for crude will continue on their general downward trend, forcing these firms to make hard choices about new projects.

Prices for gasoline will have to fall because U.S. gasoline inventories are rising as new cars are more fuel-efficient and drivers simply drive less. Unless federal law is changed to permit crude oil exports beyond Canada and Mexico, increased U.S. production will find its way to U.S. refineries. Refined products exports could grow, and with them, refining revenues and profits.

If there are any profits to be had in the second quarter, they are once again likely to depend on refining. Services companies’ margins are being squeezed because of price competition and falling crude prices are limiting margins for the producers.

Natural gas producers should see an upturn in prices during the summer cooling season, and most analysts expect that to carry on right through the rest of this year. Gas prices around $8 per thousand cubic feet are certainly possible.

The projection actually is not as bad for Down Jones Industrial oil producers like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) as you might expect, although it may bring some caution or range-bound trading for the United States Oil (NYSEMKT: USO) exchange-traded product. If you watched the oil bubble of 2008, it did not materialize as you might expect for big oil earnings, and the oil companies maintained over and over that the price was not based on market fundamentals.

ETF Securities is talking about fracking and shale oil’s impact on the global oil market. Ultimately, the firm believes that the direction of oil prices in the near term will depend on the sustainability of the U.S. and China economic recoveries. Shale oil production has surged in the United States. Shale production is also expected to expand to Russia and the Middle East, where output from conventional oil is declining. Some key takeaways are as follows:

• Major energy reporting agencies have reduced their estimates of global oil demand.
• Reduction in forecasts of U.S. and China demand and a deterioration of demand conditions in Europe increasing oil supply from shale and an uncertain global growth outlook likely will keep oil prices trading in a relatively narrow range.
• Near-term oil price upside likely will be capped by concerns about the sustainability of the U.S. and China economic recoveries.
• Downside is likely limited to around U.S.$80 a barell for West Texas Intermediate (WTI) as production becomes uneconomic for many shale producers under that price.

The report concludes”

Ultimately, the downside for oil prices — barring a major economic or financial shock — should be limited to around US$80 per barrel for WTI, as below that level shale oil production will start to become uneconomic for a number of producers. The increase in US oil exports will also help release some of the downward pressure on the WTI price. Brent oil medium term downside should be limited to not far below Saudi Arabia’s indicated target level of US$100/bbl. Therefore, despite rising global supply and lower demand trends in the West, the price of oil is likely to remain within a relatively tight trading range for the foreseeable future.

As with all predictions, things can get in the way. Supply disruption, military actions, regulatory or legal actions and even taxation can play a role in messing up any accurate projections.

The U.S. dollar index is trading down 0.42% today, now at 82.159. The GSCI commodity index is down 0.5% at 622.29. WTI crude oil closed up 1.6%, at $94.50 a barrel. Brent crude trades up 0.5% at $103.72 a barrel. Natural gas is up 4% today at about $4.39 per million BTUs. Gold settled up 1% today at $1,467.40 an ounce.

The unofficial closing bells put the DJIA up more than 106 points to 14,818.83 (0.72%), the NASDAQ rose nearly 28 points (0.85%) to 3,307.02, and the S&P 500 rose 0.72% or more than 11 points to 1,593.59, a new high.

There were a several analyst upgrades and downgrades today, including Walt Disney Co. (NYSE: DIS) raised to ‘buy’ at UBS; Petroleo Brasileiro SA (NYSE: PBR), aka Petrobras, raised to ‘buy’ at BofA/Merrill Lynch; Union Pacific Co. (NYSE: UNP) cut to ‘hold’ at TD Securities; Gold Fields Inc. (NYSE: GFI) cut to ‘neutral’ at HSBC; and Abercrombie & Fitch Co. (NYSE: ANF) raised to ‘outperform’ at Macquarie.

Earnings reports since markets closed last Friday resulted in some price moves today, including these as of the last half hour of trading: Eaton Corp. (NYSE: ETN) is up 3.6% at $60.76; Loews Corp. (NYSE: L) is up 0.4% at $44.63 (more coverage here); Senior Housing Properties Trust (NYSE: SNH) is down 1.4% at $28.18; and Sohu.com Inc. (NASDAQ: SOHU) is down 0.2% at $50.66.

Before markets open tomorrow morning we are scheduled to hear earnings reports from Embraer SA (NYSE: ERJ), Express Scripts Holding Co. (NASDAQ: ESRX), General Growth Properties Inc. (NYSE: GGP), Herbalife Ltd. (NYSE: HLF), Hertz Global Holdings Inc. (NYSE: HTZ), Newmont Mining Corp. (NYSE: NEM), Riverbed Technology Inc. (NASDAQ: RVBD), 3D Systems Corp. (NYSE: DDD), Aetna Inc. (NYSE: AET), Anheuser-Busch InBev SA (NYSE: BUD), Avon Products Inc. (NYSE: AVP), BP plc (NYSE: BP), Harvest Natural Resources Inc. (NYSE: HNR), Marathon Petroleum Corp. (NYSE: MPC), Office Depot Inc. (NYSE: ODP), Sirius XM Radio Inc. (NASDAQ: SIRI), United States Steel Corp. (NYSE: X), and Valero Energy Corp. (NYSE: VLO).

Some standouts among heavily traded stocks today include:

Petroleo Brasileiro SA (NYSE: PBR) is up 6.6% at $19.23. Petrobras, as it’s known, reported lousy earnings, but it forecast growth going forward, added to a possible restart of drilling by Chevron Corp. (NYSE: CVX) in the Frade field following a year of inactivity due to a spill.

Conceptus Inc. (NASDAQ: CPTS) is up 19.5% at $30.95. The medical device maker is being acquired by Germany’s Bayer AG $1.1 billion.

Zynga Inc. (NASDAQ: ZNGA) is down 3.6% at $3.23. The social games maker had no news today, but is giving back some of Friday’s gains, which followed losses earlier last week on a weak earnings report.

Stay tuned for Tuesday. The Federal Open Market Committee (FOMC) begins a two-day meeting. We have also noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – Employment cost index
• 9:00 a.m. – S&P Case-Shiller house price index
• 9:45 a.m. – Chicago purchasing manager’s index
• 10:00 a.m. – Conference Board consumer confidence index
• 11:30 a.m. – 4- and 52-week bill auctions
• 3:00 p.m. – Farm prices

The U.S. dollar index is trading down 0.30% today, now at 82.492. The GSCI commodity index is up 1.7% at 625.15. WTI crude oil closed down 0.7%, at $93.00 a barrel, but closed the week up 5.4%. Brent crude trades down 0.5% at $102.88 a barrel. Natural gas is down 0.4% today at about $4.17 per million BTUs. Gold settled down 0.6% today at $1,453.60 an ounce, but held a gain of 4.2% for the week.

The unofficial closing bells put the DJIA up about 13 points to 14,713.85 (0.09%), the NASDAQ fell nearly 11 points (-0.33%) to 3,279.26, and the S&P 500 fell -0.18% or about 3 points to 1,582.25.

There were a several analyst upgrades and downgrades today, including Boeing Co. (NYSE: BA) raised to ‘buy’ at BB&T; SunPower Corp. (NASDAQ: SPWR) raised to ‘outperform’ at Baird (more coverage here); Anheuser-Busch InBev NV (NYSE: BUD) cut to ‘conviction sell’ at Goldman Sachs; Facebook Inc. (NASDAQ: FB) raised to ‘strong buy’ at Raymond James; and eBay Inc. (NASDAQ: EBAY) reiterated as ‘buy’ with a price target of $65 at Argus.

Earnings reports since markets closed last night resulted in some price moves today, including these as of the last half hour of trading: Amazon.com Inc. (NASDAQ: AMZN) is down 6.7% at $256.32 (more coverage here); Baidu Inc. (NASDAQ: BIDU) is down 7.8% at $85.12; Clearwire Corp. (NASDAQ: CLWR) is up 3.8% at $3.44; Coinstar Inc. (NASDAQ: CSTR) is down fractionally at $55.00; HealthSouth Corp. (NYSE: HLS) is up 2.2% at $27.13 after posting a new 52-week high of $27.99 earlier today; Olin Corp. (NYSE: OLN) is down 5.6% at $24.53; Range Resources Corp. (NYSE: RRC) is down 4.3% at $74.16; Starbucks Corp. (NASDAQ: SBUX) is down 0.8% at $60.03; Wynn Resorts, Ltd. (NASDAQ: WYNN) is up 0.8% at $136.02; Alcatel-Lucent (NYSE: ALU) is down 4.3% at $1.34; Burger King Worldwide Inc. (NYSE: BKW) is up 1.1% at $18.26; Chevron Corp. (NYSE: CVX) is up 1.5% at $120.23 (more coverage here); National Oilwell Varco Inc. (NYSE: NOV) is down 1.3% at $66.34 (more coverage here); and VF Corp. (NYSE: VFC) is down 2.2% at $174.83.

Before markets open Monday morning we are scheduled to hear earnings reports from Eaton Corp. (NYSE: ETN), Loews Corp. (NYSE: L), Senior Housing Properties Trust (NYSE: SNH), and Sohu.com Inc. (NASDAQ: SOHU).

Some standouts among heavily traded stocks today include:

J.C. Penney Co. Inc. (NYSE: JCP) is up 13.8% at $17.34. The retailing giant got a major investment yesterday from George Soros. More coverage here.

Zynga Inc. (NASDAQ: ZNGA) is up 7% at $3.35. The social games company is gaining back its loss following a poor earnings report on Wednesday night that weighed on the stock yesterday.

Barrick Gold Corp. (NYSE: ABX) is down 2.7% at $18.55. The gold miner is getting hit by today’s drop in gold prices.

Stay tuned for Monday. We have noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – Personal income and outlays
• 10:00 a.m. – Pending home sales index
• 10:30 a.m. – Dallas Fed manufacturing survey
• 11:30 a.m. – 3- and 6-month bill auctions

Have a great weekend!

Total U.S. production on a barrel of oil equivalent basis declined sequentially for the quarter by 10,000 barrels a day. International production dropped by 13,000 barrels a day sequentially. The U.S. decline was attributed to increased maintenance in the Gulf of Mexico during the quarter, and the international decline was down to timing issues on some production sharing contracts and bad weather. There is the explanation for the missed revenue estimate.

Throughput at U.S. refineries fell by 126,000 barrels a day and by 100,000 barrels a day at international refineries. The declines were attributed to planned maintenance at the company’s Pascagoula, Miss., refinery and increased maintenance at international refineries. In reality, the increased maintenance likely was due to decreased demand for gasoline.

Upstream earnings fell $942 million sequentially and downstream revenues fell by $224 million. The company’s international downstream earnings rose by $121 million year-over-year as a result of higher refining margins. Sequentially, however, international refining earnings were down $28 million.

The company’s CEO said:

Our first quarter earnings were strong. Our consistent financial performance has enabled us to significantly increase the dividend again, and fund major development projects that are the foundation of the company’s future growth in production, earnings and cash flows.

Earlier this week both Chevron and Exxon Mobil Corp. (NYSE: XOM) announced dividend increases. Chevron will pay a quarterly dividend of $1.00 a share, for a dividend yield of 3.38%. We noted at the time that Chevron’s hike might have been larger than it needed to be. Today’s results may explain the thinking behind Chevron’s big boost.

The earnings announcement did not include guidance, but the consensus estimate for the second quarter calls for EPS of $3.10 on revenues of $69.12 billion. For the full year, EPS and revenues are estimated at $12.43 and $252.8 billion, respectively.

Chevron’s shares are up 0.4% in premarket trading at $118.51 in a 52-week range of $95.73 to $121.56. Thomson Reuters had a consensus analyst price target of around $128.75 before today’s report.

The U.S. dollar index is trading down 0.38% today, now at 82.733. The GSCI commodity index is up 1.2% at 614.65. WTI crude oil closed up 2.4%, at $93.64 a barrel. Brent crude trades up 1.6% at $103.40 a barrel. Natural gas is up fractionally today at about $4.17 per million BTUs after an in-line storage report (more coverage here). Gold settled up 2.7% today at $1,462.00 an ounce, chalking up its largest one-day gain so far this year.

The unofficial closing bells put the DJIA up more than 35 points to 14,711.82 (0.24%), the NASDAQ rose nearly 23 points (0.70%) to 3,292.48, and the S&P 500 rose 0.47% or more than 6 points to 1,585.17.

There were a several analyst upgrades and downgrades today, including F5 Networks Inc. (NASDAQ: FFIV) raised to ‘buy’ at Nomura; Federal-Mogul Corp. (NASDAQ: FDML) raised to ‘neutral’ at Goldman Sachs; Intuit Inc. (NASDAQ: INTU) cut to ‘neutral’ at Citigroup and J.P. Morgan; Apple Inc. (NASDAQ: AAPL) raised to ‘buy’ at Hilliard Lyons; and McGraw Hill Companies Inc. (NYSE: MHP) cut to ‘hold’ at Jefferies.

Earnings reports since markets closed last night resulted in some price moves today, including these as of the last half hour of trading: Angie’s List Inc. (NASDAQ: ANGI) is up 30.1% at $26.16 after posting a new 52-week high of $26.72 earlier today; Bally Technologies Inc. (NYSE: BYI) is up 11.4% at $54.67 after posting a new 52-week high of $54.74 earlier today; Fusion-io Inc. (NYSE: FIO) is up 18.4% at $19.70; O’Reilly Automotive Inc. (NASDAQ: ORLY) is up 4.7% at $105.86 after posting a new 52-week high of $108.98 earlier today; Qualcomm Inc. (NASDAQ: QCOM) is down 5.4% at $62.42 (more coverage here); Vale SA (NYSE: VALE) is up 1.8% at $17.05; Western Digital Corp. (NASDAQ: WDC) is down 0.1% at $52.86 after posting a new 52-week high of $57.95 earlier today; 3M Co. (NYSE: MMM) is down 2.7% at $105.00; Altria Group Inc. (NYSE: MO) is up 1.1% at $35.92; Bunge Ltd. (NYSE: BG) is up 6.9% at $72.99; Exxon Mobil Corp. (NYSE: XOM) is down 1.3% at $88.25 (more coverage here); Potash Corp. of Saskatchewan Inc. (NYSE: POT) is up 3.1% at $40.85 (more coverage here); Proto Labs Inc. (NASDAQ: PRLB) is down 1.3% at $48.10 (more 3D printing coverage here); and Safeway Inc. (NYSE: SWY) is down 14.1% at $24.28 (more coverage here).

Before markets open tomorrow morning we are scheduled to hear earnings reports from Amazon.com Inc. (NASDAQ: AMZN), Baidu Inc. (NASDAQ: BIDU), Clearwire Corp. (NASDAQ: CLWR), Coinstar Inc. (NASDAQ: CSTR), HealthSouth Corp. (NYSE: HLS), Olin Corp. (NYSE: OLN), Range Resources Corp. (NYSE: RRC), Starbucks Corp. (NASDAQ: SBUX), Wynn Resorts, Ltd. (NASDAQ: WYNN), Alcatel-Lucent (NYSE: ALU), Burger King Worldwide Inc. (NYSE: BKW), Chevron Corp. (NYSE: CVX), National Oilwell Varco Inc. (NYSE: NOV), and VF Corp. (NYSE: VFC).

Some standouts among heavily traded stocks today include:

MPG Office Trust Inc. (NYSE: MPG) is up 20.6% at $3.14. The office and real-estate development REIT is being acquired by Brookfield Office Properties Inc. (NYSE: BPO) for $3.15 a share..

Cliffs Natural Resources Inc. (NYSE: CLF) is up 16.1% at $21.15. The steelmaker and iron ore miner posted better-than-expected results this morning.

Zynga Inc. (NASDAQ: ZNGA) is down 7.1% at $3.11. The social games company posted poor results last night and expectations are not encouraging. More coverage here.

Stay tuned for Friday. We have noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – GDP
• 9:55 a.m. – University of Michigan/Thomson Reuters consumer sentiment index

Today’s news marks the 26th consecutive year of dividend hikes for Chevron. In all honesty, this is more aggressive than the company had to be. Its dividend was already north of 3% against what is close to a 2.8% for Exxon Mobil even after the dividend was raised by Exxon. Chevron is also slightly leading Exxon now with an implied payout ratio against normalized earnings per share. Thomson Reuters has estimates of $12.43 in earnings per share for 2013, and that generates about 32.2% of normalized earnings paid out before getting into GAAP versus non-GAAP issues. Exxon’s payout ratio is about 31.4% of its expected normalized earnings for 2013.

Chevron’s common dividend is payable on June 10, 2013 to holders of record at the close of business on May 17, 2013. Chevron closed up 0.7% at $118.28 against a 52-week range of $95.73 to $121.56.

We would have liked to have seen more rom the Exxon Mobil dividend hike than we saw. We would have also expected slightly less than what we saw from the Chevron dividend hike. Sometimes some companies just really aim to please.

The title of the headline simply read, “Exxon Mobil Corporation Declares Second Quarter Dividend.” With this being a 10.5% dividend hike, the press release could have said “Exxon Mobile Delivers Double Digit Dividend Hike to Shareholder” or even “Exxon Mobil Delivers 31st Annual Dividend Hike” instead.

We are not trying to ask companies to do shareholder grandstanding. BUt the delivery here was about as exciting and about as noticed as a sunrise each morning. The release simply said, “This second quarter dividend compares with 57 cents per share paid in the first quarter of 2013. Through its dividends, the corporation has shared its success with its shareholders for more than 100 years and has increased its annual dividend payment to shareholders for 31 consecutive years.”

On thing that was not really addressed was the share buybacks. Another issue is that we were hoping for a dividend hike to about $0.65 per share based upon this being so far behind rival Chevron Corp. (NYSE: CVX) already

Exxon’s share price strength throughout this trading day seems more tied to low oil inventory shortages rather than being tied to this dividend hike. Earnings are due tomorrow.

There is always a difference between the payout ratios from non-GAAP and GAAP earnings per share. The problem is that predicting GAAP earnings has too many moving bells and whistles so most analysts focus on non-GAAP. This $2.52 higher rate for the dividend now compares to a Thomson Reuters estimates of $8.02 in earnings per share (non-GAAP) for all of 2013. If you divide this then it generates only 31.4% of is expected earnings to be paid out. Given Exxon Mobil’s announcement about full production replacement and then some with high ambitions to 2017 this just feels unambitious.

We cannot be truly disappointed with Exxon over this dividend going to $0.63 rather than the $0.65 per share we were hoping for. At the same time, there is just no reward for delivering mediocrity to shareholders. This payout comes to $2.52 per year and rather than yielding just under 2.6% the new yield based upon a 0.5% share price gain to $89.65 generates a new yield of 2.81%.

Rival oil giant and dividend payer Chevron Corp. (NYSE: CVX) already yields over 3% and we expect a dividend hike from it as well with earnings due later this week. To prove how unenthusiastic Wall Street is about the Exxon hike that was announced, Chevron shares are currently up by over 0.7% at $118.37. Chevron is up more on no news than Exxon is even after it raised the dividend.

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.

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We expect that Johnson & Johnson (NYSE: JNJ) likely will raise its dividend this week as well by roughly the same 7% or so as P&G. However, the real hikes we are excited about likely will be in Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX).

There is a reason that we expect solid dividend gains from Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX). While it is important that Exxon catches up to Chevron in yield, these companies have given internal raises. If they are raising pay internally, then they almost certainly will raise the payout for their common shareholders. After all, there has not exactly been a new floodgate opened in the past year as far as business conditions, and it is not as though oil went to $120 per barrel again.

Exxon Mobil Corp. (NYSE: XOM) showed in proxy materials just last week that CEO Rex Tillerson received 15% higher compensation in 2012 than in 2011. That was put at $40.2 million. Keep in mind that Tillerson is nowhere close enough to being a founder here, even if he is considered to be a great chief executive. The fact is most of the increase was due to a pension value change and in deferred compensation, as his salary and bonus did not grow as much. All investors will read about is that his pay was up 15% or so, and they will want close to that, or more.

Chevron Corp. (NYSE: CVX) is another story where higher pay for insiders should translate to higher pay for common shareholders. Chevron’s board of directors decided to raise their own pay by 25%, the first real raise since 2009. That director compensation will rise from $300,000 to $375,000. The board also lowered insider bonus ties to stock performance. CEO John Watson’s bonus was down by 13%, or about $520,000 to $3.5 million, while his salary was up $100,000 to about $1.8 million. We expect that shareholders will key off the director pay increase in their quest for higher dividends.

Due to Chevron already having a 3% yield and Exxon paying 2.6% in yield, we still expect that Exxon will want to raise its dividend by a higher percentage than Chevron. Both oil giants are not quite paying out 30% of their expected forward earnings, so they can increase dividends handily if they choose to do so and still have enough capital to deploy via share buybacks.

If you do not want just one source on why dividends are rising and by how much, S&P also gave a report on higher dividends continuing.