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Aug. 23, 2021, 6:28 a.m. EDT

Big Oil Looks To Woo Investors Back With Massive Dividends

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Aug 23, 2021 (Baystreet.ca via COMTEX) -- Big Oil is coming off yet another blockbuster season, posting the second consecutive quarter of stellar top-and-bottom line growth. According to the latest FactSet data, the energy sector's Q2 2021 revenue growth rate of 24.9% came in way higher than Wall Street's estimate of 19.4% while the sector reported earnings of $15.9 billion compared to a loss of -$10.6 billion in Q2 2020 marked the biggest Y/Y improvement of any of the S&P 500's 11 market sectors.

Interestingly, the Big Oil duo of ExxonMobil /zigman2/quotes/204455864/composite XOM +0.55% and Chevron Corp. /zigman2/quotes/205871374/composite CVX +1.31% were largely to thank for the outstanding performance, with the two combining for $13.9 billion of the $26.8 billion year-over-year increase in earnings for the sector.

Not surprisingly, the majority of the oil and gas majors have been using their cash bonanza to reward shareholders with higher dividends and buybacks.

Chevron, Marathon Oil /zigman2/quotes/205031829/composite MRO +0.61% , Equinor ASA /zigman2/quotes/202462536/composite EQNR +1.55% , and Royal Dutch Shell /zigman2/quotes/205095589/composite RDS.A +0.30% have announced dividend hikes during their latest earnings call while ConocoPhillips /zigman2/quotes/207605056/composite COP +0.93% and BP Plc /zigman2/quotes/207305210/composite BP +0.90% have reinstated share buybacks after bumper earnings.

But contrary to Wall Street's expectations, Big Oil's cash bounty, including fat dividends, has mostly failed to impress investors, a rather surprising development in a market starved of yields.

There's a method to the madness, though.

Kathy Hipple, finance professor at Bard College in New York, has told CNBC that Big Oil's bid to lure back investors with cash rewards is unlikely to work on long-term investors.

Dividend traps

Companies in all sectors normally use dividends and share buybacks to make their shares more attractive to investors.

For most companies, dividend payments act as a token reward to shareholders for their investment. However, oil companies are particularly adept at dishing out these token rewards, and Big Oil sports some of the most impressive yields in the business.

ExxonMobil currently sports a 6.60% dividend yield (Fwd); Chevron yields 5.68%, BP 5.56%, Shell 5.01%, while MPLX LP /zigman2/quotes/208116967/composite MPLX +1.65% checks in with 10.01% fwd yield.

Meanwhile, share buybacks are designed to boost a company's earnings, which eventually reflects in its share price.

However, Hipple says that whereas a 10% yield can act as a powerful magnet for the average income investor, savvy, long-term investors are not falling for it because they view oil and gas companies as dividend traps with a sell-by date that is moving closer by the day.

"Once institutional investors determine that demand has peaked--which likely has already happened--they will abandon the sector permanently. Many already have, based on the stock performance of the sector over the past several years."

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US : U.S.: NYSE
$ 63.85
+0.35 +0.55%
Volume: 14.31M
Oct. 20, 2021 4:02p
P/E Ratio
N/A
Dividend Yield
5.45%
Market Cap
$268.83 billion
Rev. per Employee
$2.47M
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/zigman2/quotes/205871374/composite
US : U.S.: NYSE
$ 113.16
+1.46 +1.31%
Volume: 10.81M
Oct. 20, 2021 4:02p
P/E Ratio
60.75
Dividend Yield
4.74%
Market Cap
$216.02 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/205031829/composite
US : U.S.: NYSE
$ 16.49
+0.10 +0.61%
Volume: 13.18M
Oct. 20, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.91%
Market Cap
$12.92 billion
Rev. per Employee
$1.85M
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/zigman2/quotes/202462536/composite
US : U.S.: NYSE
$ 28.26
+0.43 +1.55%
Volume: 2.95M
Oct. 20, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
1.28%
Market Cap
$90.13 billion
Rev. per Employee
$2.15M
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/zigman2/quotes/205095589/composite
US : U.S.: NYSE
$ 49.44
+0.15 +0.30%
Volume: 6.83M
Oct. 20, 2021 4:00p
P/E Ratio
34.97
Dividend Yield
2.57%
Market Cap
$190.53 billion
Rev. per Employee
$1.95M
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/zigman2/quotes/207605056/composite
US : U.S.: NYSE
$ 76.02
+0.70 +0.93%
Volume: 5.51M
Oct. 20, 2021 4:00p
P/E Ratio
65.40
Dividend Yield
2.42%
Market Cap
$100.86 billion
Rev. per Employee
$1.93M
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/zigman2/quotes/207305210/composite
US : U.S.: NYSE
$ 30.13
+0.27 +0.90%
Volume: 6.86M
Oct. 20, 2021 4:00p
P/E Ratio
11.78
Dividend Yield
4.16%
Market Cap
$99.32 billion
Rev. per Employee
$2.84M
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/zigman2/quotes/208116967/composite
US : U.S.: NYSE
$ 31.48
+0.51 +1.65%
Volume: 1.71M
Oct. 20, 2021 4:00p
P/E Ratio
12.20
Dividend Yield
8.74%
Market Cap
$31.76 billion
Rev. per Employee
$1.49M
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