Exxon Mobil Seen Sharply Boosting Dividend This Month
April 18 2012 - 7:05AM
Dow Jones News
Exxon Mobil Corp. (XOM) is expected to next week unveil a
higher-than-average dividend increase, pleasing investors who have
long urged the company to bring its cash distribution closer to its
oil-industry competitors.
Some analysts forecast Exxon will lift its quarterly dividend,
currently at 47 cents per share, by between 10% and 33%. That is a
significant jump from the average 6.5% increase over the last
decade.
"Exxon Mobil is expected to react to increasing pressure from
shareholders in recent years to offer a more generous dividend,"
says Alan Good, an analyst at Morningstar.
A sharp spike is expected after Chief Executive Rex Tillerson
told analysts at the company's annual meeting in March that Exxon
was aware its dividend yield was low compared to its rivals. He
added the oil giant was evaluating a possible increase by the end
of the second quarter, when the company expects to finish
repurchasing the shares issued to acquired natural-gas producer XTO
Energy in 2010.
Exxon, the world's largest publicly owned oil company, also
typically announces its annual dividend increase the last week of
April.
Exxon is reviewing whether higher oil prices anticipated in the
future will be sufficient to allow for a bigger dividend, Tillerson
added.
Chevron Corp. (CVX), Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN,
RDSB.LN) and BP PLC (BP) all offered a higher dividend yield than
Exxon, causing some investors to question Exxon about its
preference to spend more in share buybacks than dividends.
A sharp dividend increase would be a departure for Exxon, which
for three decades has preferred to offer conservative, but constant
dividends, despite the ups and downs of the energy markets.
By contrast, Shell froze its dividend for two years in 2010 due
to the weak economic outlook. Also BP suspended its dividend to pay
for the Deepwater Horizon oil spill in the Gulf of Mexico in
2010
Still Exxon's dividend yield, currently at 2.2%, is below
Chevron's 3.1%, while Shell and BP's are over 4.5%
Analysts don't expect Texas's Exxon Mobil to lift its dividend
to a level that will close the gap with rivals, but they do
forecast a substantial increment that will soothe investors'
woes.
Exxon is likely to take "an outright positive action in response
to shareholder wishes," Deutsche Bank analyst Paul Sankey said in a
note to clients. "Dividend is likely to be stepped up to yield
closer to Chevron and within more reasonable distance of Shell and
BP." Sankey expects a 33% dividend increase that will take Exxon's
annual dividend yield close to 3%.
UBS analyst William Featherston forecasts a spike of about 15%,
while Argus Research analyst Phil Weiss expects a 10%
increment.
Exxon Mobil declined comment.
Exxon shares rose 1.7% to close at $85.45 Tuesday, and were down
11 cents after hours.
A sharp dividend increase is not an easy step for Exxon Mobil
because it is a permanent commitment, that unlike share buybacks,
can't be cut off without a major backlash from investors, said
Fadel Gheit, an analyst with Oppenheimer & Co.
The company has to carefully analyze its future cash flow and
make sure it has enough money to first finance its huge capital
annual expenditure of over $37 billion annually for the foreseeable
future even if oil prices collapsed, Gheit said.
"Oil is over $100 a barrel today, but nobody can guarantee it
will stay there," says Gheit, who said Exxon is likely to increase
its dividend by 10%.
UBS estimates Exxon Mobil needs WTI crude price of $66 per
barrels in order to generate enough cash flow to equal to the
company's capital expenditure budget plus a 15% increase in
dividend.
Light, sweet crude for May delivery on the New York Mercantile
Exchange settled up $1.27 a barrel, at $104.20 a barrel, the
highest price since April 2.
-By Isabel Ordonez, Dow Jones Newswires; 713-547-9207;
isabel.ordonez@dowjones.com
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