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Dividend Cut Risk of The 6 Oil Super Majors

Oil prices have collapsed from highs of ~$120 per barrel to lows of ~$30 per barrel.

Oil Prices
Source: Finviz

Tumbling oil prices have caused real problems for the oil industry. Marginal oil companies are facing solvency issues and are having to slash dividends.

But what about the kings of the oil and gas industry – the 6 super major oil and gas corporations – are they also likely to cut their dividend payments?

The 6 super majors are listed below:

– BP plc (ADR) (NYSE:BP)

– Eni SpA (ADR) (NYSE:E)

– Total SA (ADR) (NYSE:TOT)

– Chevron Corporation (NYSE:CVX)

– Exxon Mobil Corporation (NYSE:XOM)

– Royal Dutch Shell plc (ADR) (NYSE:RDS.B)

Of the 6, ExxonMobil is the largest. The image below shows the respective market caps of all 6 super majors to get an idea of their relative sizes.

Super Major Market Cap

The super majors all have enviable dividend yields – especially when compared to the S&P 500’s current dividend yield of 2.2%.

– BP has a dividend yield of 7.8%

– Eni SpA has a dividend yield of 6.3%

– Total SA has a dividend yield of 6.0%

– Chevron has a dividend yield of 5.0%

– ExxonMobil has a dividend yield of 3.7%

– Royal Dutch Shell has a dividend yield of 7.7%

The lowest yielding super major has a 3.8% dividend yield – a full 1.6 percentage points above the S&P 500’s dividend yield.

The highest yielding super major is Royal Dutch Shell with its 7.8% dividend yield. BP is not far behind with a 7.4% dividend yield. Click here to see 12 quality high dividend stocks analyzed in detail.

If the super majors are able to pay steady or increasing dividends, they are absolute bargains at current prices.

If, on the other hand, they will soon be cutting their respective dividends, then they are nothing more than fool’s black gold.

This article examines the likelihood of a dividend cut as well as the respective investment merits of each of the 6 super majors.

Chevron Corporation (NYSE:CVX)

Chevron is the second largest super major, and has the second lowest yield of the 6 at ‘just’ 5.0%.

Chevron is a Dividend Aristocrat (along with ExxonMobil); Chevron has paid increasing dividends for 28 consecutive years. Click here to see a list of all 50 Dividend Aristocrats. The image below shows the company’s dividend history over the last 45 years.

CVX Dividend History

Chevron’s long history of dividend increases shows that the company is committed to paying rising dividends.

The company’s management has been very clear about its commitment to dividends as the image below from the company’s most recent earnings presentation shows:

Chevron Dividend Committment

The will to pay increasing dividends is very important for a management. Without it, the dividend is one of the first capital outlays to be cut when times get tough.

During the financial crisis of 2007 to 2009, oil prices dropped precipitously. The company’s earnings fell by 55%. Despite this, Chevron did not cut its dividend.

In 2015, Chevron Corporation (NYSE:CVX) saw cash flow from operations decline:

– 2015 cash flow from operations of $19.5 billion

– 2014 cash flow from operations of $31.5 billion

Among the funds tracked by Insider Monkey, 45 reported long positions in Chevron Corporation as of the end of September, amassing 1.20% of the company’s outstanding stock. Among its largest shareholders are D.E. Shaw, Adage Capital Management, and Fisher Asset Management.

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