Bulletin
Investor Alert

New York Markets After Hours

Nov. 27, 2020, 3:00 p.m. EST

Three paths Exxon could take with its dividend

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Exxon Mobil Corp. (XOM)
  • X
    S&P 500 Index (SPX)

or Cancel Already have a watchlist? Log In

by Claudia Assis

The potential for COVID-19 vaccines in the new year has buoyed oil and gas markets in recent sessions, but that more upbeat oil-demand outlook is still not enough for Exxon Mobil Corp. to fund its dividend entirely from operating cash flow.

That’s according to Pavel Molchanov, an analyst at Raymond James, who in a note Friday sketched three approaches Exxon /zigman2/quotes/204455864/composite XOM +1.41% , a rare “dividend aristocrat” that has paid dividends for decades without interruption, could could take to dividend payouts going forward.

Exxon “faces a rather unenviable choice,” Molchanov said in the note.

It could break its pledge to eschew more debt, “which is feasible but would cost management credibility.”

It could sell assets, likely to be sold at a less-than-ideal price, and use the money to support the dividend. That’s “the most probable solution,” but one that is not sustainable in the long run, Molchanov said.

Finally, Exxon could take the “radical approach of cutting the dividend, which we do not believe will happen at least over the next 12 months,” the analyst said.

For now, Molchanov kept its rating on Exxon at the equivalent of sell, which compares with an average rating of hold among the 25 analysts polled by FactSet.

He said he expects the company’s cash balance to hover around $3 billion by the end of the fourth quarter, which is about as low as Exxon lets it be.

Exxon hinted at possible asset sales during a conference call with analysts after it reported third-quarter results last month, saying it was “working” to keep the dividend intact while holding the line on debt.

The stock has fallen 42% this year, which contrasts with a gain of around 13% for the benchmark S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.39% . The SPDR Energy Select Sector exchange-traded fund XLE has lost 35% in the period.

/zigman2/quotes/204455864/composite
US : U.S.: NYSE
$ 49.53
+0.69 +1.41%
Volume: 22.27M
Jan. 20, 2021 4:00p
P/E Ratio
63.67
Dividend Yield
7.03%
Market Cap
$206.51 billion
Rev. per Employee
$3.42M
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,851.85
+52.94 +1.39%
Volume: 2.33B
Jan. 20, 2021 4:20p
loading...

Get news alerts on Exxon Mobil Corp. — or create your own.
This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.