Dividends for Tough Times: 4 Energy Stocks That Raised Payouts During Covid

We went looking for energy companies in the

S&P 500
that raised their dividends earlier in the pandemic, specifically in 2020 and 2021. Being able to boost a dividend in such a distressed period is a good starting point for how well a company can weather such periods and have the wherewithal to keep raising payouts.

Among the 21 energy companies in the S&P 500, only about half managed to pay out a higher dividend over the previous year in 2020 and 2021. That was the takeaway from a recent stock screen Barron’s ran.

We added one other criteria: the company’s market capitalization had to be above $50 billion. That ultimately narrowed the list of qualifying companies to

Exxon Mobil

(XOM),

Chevron

(CVX),

Pioneer Natural Resources

(PXD), and

ConocoPhillips

(COP).

Energy companies in general, even if they didn’t make this list, have been paying more attention to returning capital to shareholders.

While the price of oil “has corrected from highs, [energy companies] are all still making a ton of money and have taken that money to give it back to shareholders in dividend increases, buybacks and special dividends,” says Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors.

Some companies narrowly missed the list Barron’s compiled. If a company merely maintained its dividend in 2020, for example, it wasn’t included, as we wanted to see increases in 2020 and 2021.

For a while, it looked as though Exxon Mobil wasn’t going to boost its dividend in 2021. It declared a quarterly dividend increase in April of 2019, raising the payout to 87 cents a share from 82 cents.

The company didn’t increase it in 2020, though the total it paid out for the calendar year, $3.48 a share, was slightly above the previous year’s amount, $3.43. Its quarterly dividend of 87 cents a share, put through in April of 2019, enabled the 2020 payout to exceed the previous year’s total by 5 cents.

That also allowed Exxon to stay in the

S&P 500 Dividend Aristocrats Index,
whose members have paid out a higher dividend for at least 25 straight years.

In 2021, the company paid $3.49 a share in dividends, compared with $3.48 the previous year. It boosted its quarterly dividend by a penny, to 88 cents a share, last fall.

Earlier in the pandemic, however, there was concern that the energy giant could cut its dividend as it wasn’t generating enough free cash flow to cover the payout.

In October of 2020, for example, the stock on a 12-month trailing basis was yielding more than 10%, according to FactSet. But it has moved down considerably since then, helped by much stronger energy prices. The stock now yields about 3.7%—still attractive but well below distress levels.

Another energy giant, Chevron, never had its dividend yield spike as much as Exxon Mobil’s did—though it did rise to about 7% in October of 2020. The company paid a dividend of $5.31 a share last year, up a respectable 3% from 2020 levels.

Due to the volatility of their earnings in recent years, some energy companies are now paying variable dividends as a way to hedge their capital-return policies.

In May, for example, ConocoPhillips declared an ordinary dividend of 46 cents a share and a variable return of cash of 30 cents a share. The firm is among the exploration-and-production companies, which typically aren’t as big and and global as the do-it-all giants, such as Exxon and Chevron.

Another E&P firm, Pioneer Natural Resources, also uses a base-plus variable dividend structure. That helped lift the total payout to $6.83 a share last year, up from $2.20 in 2020.

The stock was recently yielding 9.8%, the highest of the four companies spotlighted by this screen.

An Aug. 29 Morgan Stanley research note points out that Pioneer is committed to investing 65% to 75% of its cash flow on capital spending but keeping its production growth to 5%.

“The company intends to grow its base dividend while distributing cash windfalls via variable dividend,” the note observes.

Big energy companies like these four certainly will have their ups and downs, especially if a recession ensues. But they’ve shown in recent years that their dividends are pretty durable, even in tough circumstances.

Write to Lawrence C. Strauss at [email protected]