More Reason to Expect Exxon and Chevron Dividend Hikes

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It was late in March when we predicted several DJIA stocks would increase their dividend payments in April. Monday morning brought news that  Procter & Gamble Co. (NYSE: PG) was increasing its common stock dividend by 7%, from $0.562 to $0.6015 per share per quarter. While this was not on the list, it was on our list from June, and the timing was just off a few weeks.

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.