Dow component Exxon Mobil (NYSE: XOM), the largest U.S. oil company, revealed a modest increase to its dividend Wednesday. That helped Texas-based Exxon extend a lengthy dividend increase streak and maintain its perch in some exchange traded funds that weigh member firms by a minimum dividend increase streak, be it 10, 20 or 25 years.
However, energy ETFs such as the Energy Select Sector SPDR (NYSEArca: XLE), Vanguard Energy ETF (NYSEArca: VDE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY) could still face some dividend issues. Over the past year, no sector has delivered as much negative dividend action as energy, the seventh-largest sector weight in the S&P 500.
Potentially unsustainable dividend payouts in the energy sector could pressure more so-called high dividend ETFs that weigh components based on payouts. Investors will also be keeping a close eye on dividends, especially with oil prices at $30 per barrel. Oil CEOs have pledged to maintain their dividends, but with oil prices dipping to 13-year lows, traders are growing skittish.
Chevron (NYSE: CVX), the second-largest U.S. oil company, let its own lengthy dividend increase streak lapse last year and other top 10 holdings in ETFs such as XLE and VDE have been dividend cutters, including Kinder Morgan (NYSE: KMI).
“Oil companies have largely guarded their dividends, despite the collapse in crude prices since 2014. The industry has a tradition of providing steady dividends and has tended to opt for spending cuts rather than reducing payouts to investors,” according to CNBC.
[related_stories]Oil majors have tightened their belts, reducing costs by laying off thousands of workers and halted many new projects. Large integrated oil companies are expected to hold up better than drilling stocks as these giants have both upstream exploration and production, along with downstream refining operations.
The energy sector has suffered some of the most pessimistic first quarter projections, which leaves the oil producers a lot of room to surprise on the upside. In fact, some traders are betting on more upside for the once downtrodden energy patch. As oil prices drag on oil company shares, the correlation between stocks and oil potentially weakened to some extent, which may have benefited broad benchmark investments in the event of further crude oil weakness.
“Nearly 80 percent of energy companies maintained or increased their dividend payments in 2015, according to a post on the Research Centre for Energy Management website. That was despite companies struggling to generate cash in the face of depressed oil prices,” adds CNBC.
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Energy Select Sector SPDR
