In brief:
- Exxon Mobil (XOM) is a Dividend Aristocrat with 37-years of consecutive dividend increases
- Exxon Mobil reported its third straight quarter of losses putting is its dividend at risk
- A dividend increase is required soon to maintain its Dividend Aristocrat status
Exxon Mobil (XOM) reported its third straight quarter loss on Friday. During this third quarter, the company reported a net loss of $680 million, or 15 cents a share, after net income of $3.17 billion, or 75 cents a share, in the year-ago period. The stock has tumbled 53% year to date through Thursday and dropped another -2.5% on Friday morning.
This third straight quarter loss due to COVID-19 and lower oil prices are putting real pressure on a dividend increase this year to maintain its Dividend Aristocrats status. A dividend cut would end Exxon’s 37-year streak of consecutive dividend raises.
Skipping the default dividend increase in Q2 has been the first signal and the Q3-loss is not helping Exxon to control its dividend payout, which is exploding to +200%-levels.
Also, other dividend safefy metrics such Debt to EBITDA or the free cashflow are raising a red flag.
Exxon management has only a few options left to maintain the current dividend and is already laying off some of its workforces. Thursday it announced the intention to reduce its U.S. staff by around 1,900 employees. Although Exxon has repeatedly said its dividend remains a priority, the question is really for how long now, since the second COVID-19 wave is looming.
In our opinion, there’s an increasing risk that Exxon will have to cut its dividend in 2021 if demand and oil price doesn’t fully recover.
