The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is 2016’s best-performing member of the sector SPDR suite of ETFs.
That after the energy sector was the worst-performing group in the S&P 500 last year and a drag in 2014 as oil careened into a bear market.
In addition to tumbling oil prices, one of the primary reasons investors ditched equity-based energy ETFs like XLE last year was the erosion of the energy sector’s allure as a dividend destination. In 2014 and 2015, no sector saw as many negative dividend actions, including cuts and suspensions, as did energy.
Related: 4 Energy ETFs may be at Near-Term Tops
Previous negativity surrounding energy sector dividends could be poised to give way to good news, meaning dividend increases and perhaps renewed payouts.
“Dividend investors should take a company-by-company approach. The financial strength of an exploration-and-production company isn’t the same as that of an integrated major like ExxonMobil (XOM). That company earlier this year declared a quarterly dividend of 75 cents a share, up from 73 cents, for a 2.7% hike. Markit expects ExxonMobil to lift its payout 5% next year,” reports Lawrence Strauss for Barron’s.
Some of this year’s dividend offenders from the energy patch should hold payouts steady next, which is certainly less bad news than negative dividend action.
Markit expects some XLE constituents that “reduced their payouts this year, including National Oilwell Varco (ticker: NOV) and Anadarko Petroleum (APC), to maintain them at current levels in 2017. Also on the plus side, 12 S&P 500 energy firms have announced payout boosts this year,” reports Barron’s.
SEE MORE: Earnings Recovery Could Lift Energy ETFs
Rebounding earnings are supportive of a more optimistic dividend outlook for the energy sector.
As ETF Trends reported last week: While energy companies are expected to be the largest contributor to earnings decline for the S&P 500 in the third quarter, the stabilizing crude oil prices and potential production cutbacks from major oil producers could help support sector-related exchange traded funds.
Some analysts expect the energy sector will become a positive contributor to earnings growth for the S&P 500 by the first quarter of 2017 due to a combination of higher expected oil prices and easier comparisons to weak earnings in 2016.
For more information on the energy sector, visit our energy category.