In a development that marks and underscores the massive impact the coronavirus is having on the oil industry, Exxon Mobil Corp stated, it will keep its fourth-quarter dividend flat at 87 cents a share. This is the first time since 1982 that the oil giant has not raised its shareholder payout.
Exxon, the biggest U.S. oil producer by volume, has been caught off guard by stumbling energy prices and demand for it in 2020. U.S. gasoline prices are down by 39% since the start of this year and has tumbled even lower because of the coronavirus-induced COVID-19 pandemic which emerged from Wuhan, China.
As a potential way out of this mess, Exxon has pledged to cut costs and jobs, with a formal press release scheduled for tomorrow. The decision to retain the quarterly dividend potentially indicates that it expects its margins to improvements after its cost-cutting strategy, which will later allow it to make dividend payouts later/
At $3.48 per share, the annual dividend is equal to 10.6% of its share price.
Exxon has posted its first back-to-back quarterly losses this year and is projected to report a full-year loss of $2 billion, according to Refinitiv estimates; this is after exclusion of asset sales or write downs. It is set to report during its third-quarter financial results, which are formally set to be released tomorrow.
According to Raymond James, an analyst at Pavel Molchanov, Exxon has a “narrow path” to maintain its dividend policy without piling on further debt. Even if U.S. oil prices trade around $45 per barrel, paying a nominal dividend would deplete its cash balance by the end of 2021, said Molchanov.
Incidentally, Royal Dutch Shell PLC, BP PLC and Equinor ASA have slashed their dividend payouts by at least 50%.
Four years ago, Exxon stopped buying back its own shares, giving greater prominence to the dividend, which reached $14.7 billion last year. Earlier this year in July, Exxon had said, it was committed to maintaining its dividend payout policy.
“We have doubts about the sanctity of the dividend longer-term,” said Jennifer Rowland, analyst with Edward Jones. “There is greater potential for a dividend reduction in 2021 if demand doesn’t fully recover.”