Analyst: Dividend Cuts Coming for Big Oil
Weak oil prices have hammered profits at energy giant Chevron Corporation (NYSE:CVX). Now some analysts are wondering if the dividend for CVX stock is safe.
On Friday, Chevron reported a quarterly loss for the first time since 2002.
One analyst has told CNBC that investors should now expect dividend cuts in large oil companies.
“There will come a day where dividend is at risk and that day is today,” Oppenheimer senior analyst Fadel Gheit told the financial news channel. “Not only Chevron, but the rest of the industry is currently funding dividends through additional borrowing. You can’t do that forever.” (Source: “Expect dividend cuts in big oil: Analyst,” CNBC, January 29, 2016.)
Although Gheit is anticipating Chevron to cut its dividend any day now, the company is likely to seek alternative solutions first. Chevron already stopped its share buyback program last year. And in October, Chevron cut 6,000 to 7,000 jobs. (Source: “Expect dividend cuts in big oil: Analyst,” CNBC, January 29, 2016.)
Falling oil prices are hurting results at these companies. An excess of global supply has pulled down prices by 70% since mid-2014. On Tuesday, the U.S. oil benchmark was hovering around $30.00, whereas Brent was trading at $33.00.
On Tuesday, Exxon reported a 58% slump in fourth-quarter earnings. The world’s largest publicly traded oil company also slashed its drilling budget to a 10-year low.
BP, Europe’s third-biggest oil company, said on Tuesday that its net income dropped to its lowest level in 20 years and unveiled plans to eliminate 7,000 jobs.
Chevron is paying a quarterly dividend of $1.07 per share with a dividend yield of 5.2%. BP’s dividend yield is 8.2%, while Exxon’s is 3.9%.
The company posted a fourth-quarter net loss of $588 million, or $0.31 per share, compared to a net profit of $3.47 billion, or $1.85 per share, in the year-earlier period.
The bulk of Chevron’s losses came from its divisions that explore for and produce oil and natural gas, with its U.S. division alone posting a loss of $1.95 billion.
Shares of the San Ramon, California-based company have lost 22% over the past 12 months and were trading at $82.36, down 3.5%, on Tuesday.