Energy Business

Did Chevron Just Force Exxon Mobil Into Dividend Hikes No Matter What?

Chevron Corp. (NYSE: CVX) was hosting its annual analyst meeting in New York. The company said that it was reiterating priorities, which focused on its near-term outlook and showed how it is in an advantaged position for when the energy markets recover.

What stands out here is not just the forecast for production growth, nor in the new round of spending cuts. Chevron is taking the steps to protect its dividend. This matters, particularly as it stands with Exxon Mobil Corp. (NYSE: XOM) and that dividend.

24/7 Wall St. has focused on Chevron’s own projections first as that was the news of the day, but we wanted to look specifically at how all the dividend analysis looks on Chevron versus Exxon Mobil. That includes yields, with Chevron out-yielding Exxon Mobil, and it includes what each company’s dividend liabilities mean. It seems hard to believe, but the long and short of the matter is that there is literally a $20 billion dividend liability here if you combined the payouts from each company.

The company’s project completions and shale drilling efficiency are targeting a capital spending (capex) budget for 2017 to 2018 at a range of $17 billion to $22 billion per year. Chevron said back in late 2015 that 2017 to 2018 spending would be roughly $20 billion to $24 billion.

What also stood out was that Chevron is discounting a focus on mergers and acquisitions right now. The company said that it would of course look at an opportunity if it was the right deal at the right price, but M&A just is not a primary focus.

What matters now is that Chevron’s 2015 net income of $4.6 billion was the lowest in 13 years. Still, it posted a loss in the fourth quarter. and that was the first real quarterly operating loss going back to 2002.

To accommodate the cost cutting already on the books, over 3,000 layoffs were seen in 2015 and roughly 4,000 will be seen in calendar 2016. Exxon has so far tried to avoid serious layoffs, although with a 25% capex cut planned for 2016 it seems hard to trust that its headcount will remain the same.

Where the big news is also not even in cost rationalization by not spending on longer horizon projects, but that the savings here are obviously being targeted to keep the dividend. Chevron reiterated the importance of dividend growth and maintaining a strong balance sheet. The company noted a history of 28 consecutive years of dividend hikes and plans to limit debt increases beyond 2016.

Chairman and CEO John Watson told the analysts in attendance that investor payouts remain the top priority. Watson specified that this was to “maintain and grow the dividend” and Watson went as far as even saying the company would use its credit line if need be to cover its current quarterly dividend.

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