To the giant energy companies, their generous dividends remain sacrosanct, even as low oil prices punish their bottom lines. And although many Wall Street savants predict the four major players eventually will be forced to lop dividends, company managers are adamant that won't happen.
As a survival measure, scores of smaller energy outfits have axed their payouts during the oil bust. Many of these companies fell into bankruptcy or other restructurings. But the quartet of oil majors possesses the market reach and financial heft to slog through their industry's troubles, at least for the time being. So, they keep defiantly paying the rich dividends.
Exxon Mobil (XOM), which announced Friday that profits for this year's first quarter sank 63 percent, nevertheless hiked its quarterly payout 3 percent, to 75 cents per share. That marked Exxon's 34th straight year of dividend hikes. And the dividend announcement came on the heels of Standard & Poor's stripping Exxon of its pristine AAA credit rating earlier last week.
One reason S&P cited for the downgrade was Exxon's "large dividend payments." In 2015, it had $16.2 billion in net income, which was almost half of 2014's showing. In spite of the earnings slide, by S&P's count, Exxon last year shelled out some $12 billion in dividend payments.
Even BP (BP), suffering from massive ongoing expenditures to atone for its catastrophic 2010 oil spill in the Gulf of Mexico, is maintaining its nice quarterly dividend at 60 cents per share. The British firm last week reported a 79 percent drop in first-quarter earnings.
Royal Dutch Shell (RDS.A), due to report its performance on Wednesday, will see earnings per share tumble by 68 percent, compared to 2015's first quarter, according to analysts' estimates. Last year, the Anglo-Dutch company's chief executive, Ben van Beurden, guaranteed the dividend will remain inviolate through 2016.
The oil majors provide investors with handsome yields (that's the dividend divided by the stock price): 3.4 percent for Exxon, 4.1 percent for Chevron, 7.2 percent for BP and 6 percent for Shell. Those compare favorably to the 1.9 percent yield for the broader market. By S&P's reckoning, energy companies made up 60 percent of U.S. corporate dividends, by dollar volume, in 2016's first quarter.
"The dividend is a core reason to invest in the oil majors," said Joe D'Angelo, a partner in Carl Marks, an investment firm. "Cut it and you risk a trade-off" of the stock. Although the majors' stocks are up a bit this year, they're way down from two years ago. Think how much worse they would be without the attraction of the dividend.
Depressed oil prices, which have caused so much distress in the energy business, show little sign of returning to comfortable levels. The price was around $110 per barrel in 2013 and then sank to $26 last year, amid a vast expansion of global output that has led to an enormous glut.
Oil's price has edged up to $46 per barrel lately, but further advances will be tough. While production pullbacks in North America and elsewhere have eased the oversupply somewhat, continued pell-mell pumping in the Middle East is a formidable obstacle to price improvement. Shell's van Beurden has said his company's break-even price is $50 per barrel.
Trouble is, even if the oil price does climb to $60, Goldman Sach's (GS) head of commodities research, Jeff Currie, argued that the Big Four won't be able to keep paying so lavishly. The commitment to high dividends was struck during better days for the energy sector, he said.
The majors' devotion to outsized dividends rests on their breadth of activities. They have a hand in all aspects of the energy business, from exploration and production to gasoline refining and chemical manufacturing. While the money they make from finding and extracting petroleum has dwindled, refining it benefits from the lower costs. Ditto chemicals.
The four biggest oil companies' geographic span is daunting. Exxon, which often tops the list of the world's most valuable companies -- not counting huge state-owned entities like China's -- has operations on every continent except Antarctica.
The majors' smaller rivals don't enjoy such strength and diversification. ConocoPhillips (COP), for instance, slashed its dividend by two-thirds in February, trying to stem losses. CEO Ryan Lance termed the decision "gut-wrenching." In 2012, Conoco spun off its refining unit. Diamond Offshore Drilling (DO), which focuses on production, eliminated its dividend this winter, as the firm turned unprofitable.
Rather than touch payouts, the four largest publicly traded oil companies have all whittled down their stocks buybacks, trimmed costs and shrunk capital spending, such as searches for new oil fields. Howard Silverblatt, senior index analyst for S&P Dow Jones Indices, noted that buybacks and spending are more flexible than dividends, whose level investors closely follow. Reducing the payouts, he said, "is admitting to the world: 'We have a problem.'"
The largest firms have a greater ability to tap capital markets than smaller competitors do. And they have enormous amounts of cash, which they can deploy to pay investors. "Those huge cash piles mean they don't have to depend on cash flow" to fund dividends, Carl Marks' D'Angelo said.
The oil majors may yet disappoint investors. For the moment, however, they smugly believe they won't.