Oil ETF Dividends Appear Safe…Sort Of

With oil prices remaining stubbornly low and major producers cutting capital expenditures while also trimming share repurchase programs, investors are concerned that some of the oil patch’s longest dividend increase streaks are at risk.

With April being the month in which Exxon Mobil (NYSE: XOM), the largest U.S. oil company and the largest holding in an array of equity-based energy exchange traded funds, usually raises its dividend, attention is turning to the viability of that payout increase streak as well as the energy sector’s potential as a value play.

“Investors seem to be reacting to the relative value in the space. Stocks in this group are trading with an attractive average yield of nearly 4% and a reasonable price (just 1.5 times book value). Given our outlook for stabilization in oil by year’s end, current prices may represent good long-term value,” said BlackRock Chief Investment Strategist Russ Koesterich in note posted by Amey Stone of Barron’s.

Exxon has a dividend increase streak of 32 years. That means the stock qualifies as a dividend aristocrat. So does rival Chevron (NYSE: CVX). Exxon is the largest S&P 500 dividend payer in dollar terms, having paid out nearly $11.6 billion in dividends on a trailing 12-month basis , according to FactSet data. Only six companies, including Exxon, paid more in dividends over that period than the $7.9 billion paid by Chevron.

Said differently, should Exxon and Chevron not increase their payouts this year, the stocks will be expelled from an array of dividend ETFs that use increase streaks as part of their weighting methodology, including the ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL) and the Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest U.S. dividend ETF. [Bell Tolls for Energy Dividends]

NOBL, which has over $723 million in assets under management, holds both Exxon and Chevron. Exxon is a member of VIG’s 163-stock roster as of the end of March, but Chevron is not. VIG’s oil and gas weight is just 6.9%.