Dividend Cut Risk of The 6 Oil Super Majors

Eni SpA (ADR) (NYSE:E)

Eni SpA (ADR) (NYSE:E) is the largest corporation in Italy. The company is partially owned by the Italian government (~30%) and by the Chinese government (2%).

The company was originally founded in 1926 under the name Agip. In 1953 the company was reorganized into Eni by Enrico Mattei to be Italy’s national oil and gas company.

There is no need to speculate on whether or not Eni SpA will cut its dividend…

The company already has.

Eni SpA (ADR) (NYSE:E) was the first (and possibly only) of the super majors to cut its dividend. The company reduced its interim dividend paid on September 23^rd, 2015 from $0.56 to $0.40; a 29% reduction.

This is not the first time in recent history that Eni SpA has cut its dividend payments. The company reduced its dividend 23% in 2009 when oil prices collapsed.

Eni SpA’s management does not view the dividend as sacrosanct. Dividend payments are one of the first items on the chopping block when oil prices fall.

The company’s lack of commitment to its dividends makes the company a poor choice for investors seeking steady and/or rising income from their investments.

Eni is not very popular among the investors from the Insider Monkey database as only two funds reported holding shares as of the end of September, 2015.

Summary of Results

Of the 6 oil and gas super majors, only Eni SpA has cut its dividend payments so far.

Of the 5 remaining super majors, Chevron is in the most precarious position. Chevron will likely be able to pay steady dividends in 2016 – even if oil prices average around $40/barrel through the year. Chevron may even do a paltry 1% or so dividend increase to keep its Dividend Aristocrat status.

Beyond 2016, the company’s ability to pay dividends becomes more suspect. Chevron cannot take on debt to pay its dividend indefinitely. At some point, the company will have to reduce its dividend. Based on its long dividend history and management’s commitment to the dividend, this will be a last resort – but it could happen if oil prices stay low for more than another year.

ExxonMobil, BP, and Total SA, and Royal Dutch Shell appear to have better cash flow producing abilities in the current low rate environment. It is likely these 4 super majors do not cut their dividends, even in an extended oil slump. Oil prices would have to stay depressed for years for these companies to cut their dividend. This assumes that managements will stick to their word and prioritize dividend payments.

Disclosure: None