Energy
Merrill Lynch Says No Value in Energy: Only 2 Dividends Safe Now
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You knew it was coming, and last week brought the very unpleasant truth. ConocoPhillips (NYSE: COP) announced a wider-than-expected quarterly loss and revealed plans to slash its dividend to $0.25 per share from $0.74. The stock was absolutely shredded, as many angry investors sold shares. While the cut ends up being far from a total surprise given the decline in energy prices, it is extremely disappointing given management’s insistence, as recently as December, that the dividend was secure. The shares actually rallied on Monday.
Now the reality is setting in, given the “lower for longer” scenarios for oil, and the question becomes whether any dividend is safe after the Conoco cut? A very extensive set of reports from Merrill Lynch note that with Moody’s using a $43 price deck through 2018 and inhibiting access to credit, the risk to large-caps oil companies raising equity are higher than ever. In fact with the exception of two companies, Merrill Lynch lowers the dividend outlook for all large cap U.S. oil stock in the firm’s research coverage universe.
The two companies that Merrill Lynch feel could be safe from dividend reduction are both rated Buy and offer long-term investors looking to add an energy allocation to portfolios now very attractive entry points.
Exxon Mobil
This company is one of Merrill Lynch’s top 10 picks for 2016. Exxon Mobil Corp. (NYSE: XOM) is an energy sector play that Merrill Lynch is very positive on long-term as the overall corporate strength of the massive integrated giant plays a significant part in the company’s usually solid earnings reporting pattern and in maintaining its dividend coverage.
The company’s global downstream chemical segment plays a huge part for Exxon. It may be a part that many others on Wall Street don’t fully appreciate as the segment contributes an estimated 16% of overall total revenue. Very solid reasons for adding the stock to a long-term growth portfolio include that it consistently has demonstrated disciplined investing, operational excellence and technological innovation.
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