Big oil components in so-called dividend aristocrats exchange traded funds will defend their cash payouts to shareholders even as low oil prices pressure the energy sector.
Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) are the only two energy components among S&P dividend achievers that have consistently raised dividend payouts over the long-term. [Don’t Forget These Dividend ETFs]
The two energy stocks make up 3.1% of the SPDR S&P Dividend ETF (NYSEArca: SDY), which tracts companies that have a minimum dividend increase streak of 20 years for inclusion. Additionally, the two oil names make up 3.4% of the S&P 500 Dividend Aristocrats Index, which only includes companies that have increased their dividends for at least 25 consecutive years and serves as the benchmark for the increasingly popular ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL). [Dividend, Buyback ETFs for Value Investors]
SDY has a 12-month yield of 2.2% and NOBL has a 1.57% 12-month yield.
The energy sector has tightened its belt in response to the plunge in oil prices. While investors can tolerate trimming corporate buybacks and capital expenditure to adjust for the lower projected revenue streams in a low oil environment, many would not countenance a dividend cut.
However, in an investor meeting Tuesday, Chevron expected a 20% volume growth through 2017 with a rising margins and falling capex, reports Ben Levisohn for Barron’s.
“This means that the dividend is covered at $70/bbl Brent ($65/bbl WTI) in 2017,” according to Credit Suisse analysts. “In our minds, $70/bbl is intramarginal, i.e. the dividend is defendable. Beyond 2017, you should still expect a 4% yield.”
Deutsche Bank’s Ryan Todd and Igor Grinman also had an optimistic outlook on Chevron after the fallout in oil.
“We view Chevron as relatively attractive amongst mega-caps, whose coming volume and cash flow inflection point is well positioned for a gradual recovery in crude,” Deutsche analysts said.
Additionally, ExxonMobil has taken steps to reduce spending. Previously, Exxon already cut its share buyback program in the first quarter by over half to $1 billion, Reuters reported.
ExxonMobil also announced it would reduce its capital spending budget by 12% to $34 billion this year, reports Angela Chen for the Wall Street Journal.
ProShares S&P 500 Aristocrats ETF
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Max Chen contributed to this article.