What makes it even more challenging for Chevron is that it still has some pretty large capital obligations to finish up a slew of projects that have not yet come online. By comparison, other larger spenders like Total have already started to wind down their capital spending this year; Total has brought several projects online.
What's working in Chevron's favor?
Yes, Chevron is more tied to the production side of the business, but it isn't wholly dependent upon it. So far this year, downstream operations have covered up losses from the upstream side of the business, so earnings stand at $5.7 billion. With oil prices remaining this low, Chevron still has the ability to keep leaning on its refining and chemical segments to prop up earnings and cash flows.
Another thing that will help the company's cause is the fact that some of the cost-cutting measures it took earlier in the year are starting to show in the income statement. So far this year, upstream operational costs are slated to be 13% lower than in 2014, and the company believes that through some of its recent restructuring efforts and service contract negotiations it will lower its operational costs by at least $4 billion.
In most of the recent conference calls, Chevron CEO John Watson has really gone out of his way to say that this will not compromise the company's finances over the long term . He has also said that the winding down of these major capital projects will result in a lot of budget flexibility starting in 2017, which will allow the company to cover any dividend payment with internally generated cash flow and no longer rely on other sources such as debt issuances or asset sales. 2016's capital budget is expected to be $7 billion-$10 billion less than 2015's, mostly as a result of some projects going operational.
What a Fool believes
Compared to the rest of the integrated majors, Chevron looks like it is not likely to raise its dividend. So if you are looking at adding a Big Oil company to your portfolio for a super-safe dividend, then you might want to consider looking at ExxonMobil . We need to keep that in context, though, because integrated oil and gas companies are some of the lowest-risk investments in the energy space because of their ability to generate cash throughout the cycle.
It doesn't look like the oil market is going to make it easy, but Chevron's management seems bound and determined to keep its dividend policy intact come hell or high water. So barring any unforeseen changes, it's pretty safe to say that 2016 will not be the year that we see Chevron break its dividend increases.
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The article Will Chevron Corporation Raise Its Dividend in 2016? originally appeared on Fool.com.
Tyler Crowe owns shares of ExxonMobil. You can follow him at Fool.com or on Twitter @TylerCroweFool .The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Chevron and Total (ADR). Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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