Dividends for tough times: 4 energy stocks that boosted payouts during Covid

Many energy stocks — and their dividends — took a big hit earlier in the pandemic, even those of large firms. The global economy contracted along with oil and gas prices, forcing many companies in the oil region to conserve capital.

Hence a wave of dividend cuts in the energy sector at the expense of income investors.


Halliburton

(ticker: HAL) and


Occidental Petroleum

(OXY) are just a few of the big names that made such cuts.

We went looking for energy companies in


S&P 500

which raised their dividends earlier during the pandemic, particularly in 2020 and 2021. The ability to increase the dividend in such a difficult period is a good starting point for how well a company can withstand such periods and has the funds to continue increasing payouts.

Among the 21 energy companies in the S&P 500, only about half managed to pay a higher dividend than the previous year in 2020 and 2021. That was the conclusion of a recent stock screen Barron’s was running.

We added one more criterion: the company’s market capitalization had to be over $50 billion. This ultimately narrows down the list of qualified companies to


Exxon Mobil

(XOM),


Chevron

(CVX),


Pioneer Natural Resources

(PXD) and


ConocoPhillips

(COP).

Energy companies in general, even if not on this list, pay more attention to returning capital to shareholders.

While the price of oil “corrects from highs, [energy companies] all are still making a lot of money and have taken that money to return to shareholders through dividend increases, buybacks and special dividends,” said Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors.

Company / Ticker Recent price Recent income Return from the beginning of the year Market value (million)
Exxon Mobil / XOM $94.95 3.7% 60.0% 395.7 dollars
Chevron / CVX 157.12 3.6 37.7 307.6
ConocoPhillips / COP 108.63 1.7 54.2 138.3
Pioneer Natural Resources / PXD 238.99 9.8 42.0 57.0

Notes: Data as of September 6

Source: FactSet

Some companies narrowly missed the list Barron’s compiled. If a company simply kept its dividend in 2020, for example, it was not included as we wanted to see increases in 2020 and 2021.

For a while, it looked like Exxon Mobil wasn’t going to push its dividend in 2021. It announced a quarterly dividend increase in April 2019, raising the payout to 87 cents per share from 82 cents.

The company did not increase it in 2020, although the total it paid out for the calendar year, $3.48 per share, was slightly above the prior year’s amount of $3.43. Its quarterly dividend of 87 cents per share, paid in April 2019, allowed the 2020 payout to exceed the previous year’s total by 5 cents.

It also allowed Exxon to stay in the


S&P 500 Dividend Aristocrats Index,

whose members have paid a higher dividend for at least 25 consecutive years.

In 2021, the company paid $3.49 per share in dividends, compared to $3.48 the previous year. It increased its quarterly dividend by a pennyto 88 cents per share last fall.

However, there were concerns earlier during the pandemic that the energy giant could cut its dividend because it was not generating enough free cash flow to cover the payout.

In October 2020, for example, stocks were yielding more than 10% on a 12-month trailing basis, according to FactSet. But it has since fallen significantly, helped by much higher energy prices. The stock now yields around 3.7% – still attractive, but well below distress levels.

Another energy giant, Chevron, has never had as much of a jump in its dividend yield as Exxon Mobil — though it rose to around 7% in October 2020. The company paid a dividend of $5.31 per share last year, which is with a respectable 3% more than 2020 levels.

Due to the volatility of their earnings in recent years, some energy companies now pay variable dividends as a way to hedge their capital return policies.

In May, for example, ConocoPhillips declared an ordinary dividend of 46 cents per share and a variable cash return of 30 cents per share. The firm is among exploration and production companies that are typically not as large and global as do-it-all giants such as Exxon and Chevron.

Another E&P firm, Pioneer Natural Resources, also uses a variable dividend basis plus structure. That helped boost the total payout to $6.83 per share last year, up from $2.20 in 2020.

The stock recently returned 9.8%, the highest of the four companies highlighted by this screen.

An Aug. 29 Morgan Stanley research note said Pioneer has committed to invest 65% to 75% of its cash flow in capital expenditures but keep production growth to 5%.

“The company intends to increase its core dividend while distributing cash windfalls through a variable dividend,” the note noted.

Big energy companies like these four are sure to have their ups and downs, especially if a recession hits. But they have shown in recent years that their dividends are quite durable, even in difficult circumstances.

Write to Lawrence C. Strauss at [email protected]

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