Oil integrated majors,
Exxon Mobil Corp.
) raised their dividends on Thursday, barely ahead of their
quarterly financial reports. The energy behemoths, with
respectable dividend yields of 2.5% and 3.2%, respectively,
signify a haven for investors willing to play it safe.
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Irving, TX-based largest U.S. oil and gas company Exxon Mobil
raised its dividend by 9.5%, to 69 cents per share from 63 cents.
The dividend will be payable Jun 10 to investors on May 13.
Simultaneously, Chevron raised its dividend by 7% to $1.07 from
$1.00 per share. It is payable on Jun 10 to shareholders as of
The focus on payout closely follows the payout raises by two
other integrated majors across the Atlantic, namely,
Royal Dutch Shell plc
), earlier in the week. The European oil majors currently offer a
yield of 4.5% and 3.9%, respectively.
Integrated majors, through their focus on shareholder return, are
once again reminding investors of their resilience in volatile
market dynamics. The shifting focus, however, was pending as the
integrated space has underperformed the overall energy space in
the recent past. This has been aptly captured by the
Dow Jones U.S. Integrated Oil & Gas Index
), which has underperformed the
Dow Jones U.S. Oil & Gas Index
) by almost 4.5% year to date.
The large-cap integrated space in the recent past has faced a
relatively flattish oil price movement together with rising
capital expenditure, which failed to compensate for the cascading
production levels. One direct fall out of rising capital spending
was sharply falling free cash flow levels for the integrated
majors. The sector, with a long gestation period of usually more
than five years for new projects to perform optimally, also would
mean the spending will not reflect improvements in earnings and
cash flow in the near-term.
However, the space also offers investors insulation from volatile
market dynamics owing to its relatively low-risk conglomerate
business structure, fortress-like balance sheet, ample free cash
flows even in a low oil price environment and growing dividends.
Along with this, growing demand of the largest oil consumer U.S.,
would keep a check on any downside on the price of oil.
The immediate outlook for oil, however, remains positive given
the commodity's constrained supply picture. According to the
Energy Information Administration (EIA), which provides official
energy statistics from the U.S. Government, expects global oil
demand to grow another 1.2 million barrels per day in 2014.
In our view, crude prices in the next few months are likely to
exhibit a sideways-to-bearish trend, trading in the $90-$100 per
barrel range. As North American supply remains strong and the
groundbreaking agreement with Iran makes it easier for the
country to sell the commodity, we are likely to experience a
pressure in the price of a barrel of oil.
As such we believe that the integrated big oil players - all
currently carrying a Zacks Rank #3 (Hold) - provide defensive
strategy for energy investors willing to play it safe. The
exclusive club of the six behemoths Exxon, Chevron, BP, Royal
) currently has an average dividend yield of 3.2%, which far
outweighs the average yield of 2.2% of the
Dow Jones Industrial Average