4 Major Oil Producers to Cut Dividends

Zacks
By Nilanjan Choudhury 11 hours ago
Content preferences

    As oil prices look set to expand their almost 2-year rout, major energy companies are accelerating their dividend cuts and further chopping costs in an effort to shore up dwindling cash flows.

    However, it’s not only the smaller, more-leveraged exploration outfits that have been busy housecleaning. Even the fairly large producers – considered safe harbors with strong balance sheets and substantial dividends – are being forced to cut/suspend high yielding payouts in order to survive the cataclysmic energy-price scenario.

    Negative Announcements Galore

    Oil sector’s fast deterioration has forced producers to make deep cost cuts by reducing/suspending their payouts.

    Let’s look at four big energy companies that slashed/eliminated their dividends in 2016:

    1.  ConocoPhillips COP: In Feb, Houston, TX-based energy major ConocoPhillips became the first large U.S. production company to chop its dividend to deal with more challenging times ahead. The Zacks Rank #3 (Hold) energy finder – which no longer possesses a downstream segment that could have benefitted from cheap oil – slashed its payout by 66%. The dividend cut announcement was accompanied by a leaner capital spending for 2016. At $6.4 billion, it compares with $10.1 billion in 2015 and $17 billion spent in 2014. 

    2. Anadarko Petroleum Corp. APC: With an aim to endure the precipitous commodity price downturn, The Woodlands, TX-headquartered Anadarko Petroleum lowered its dividend by 81% to 5 cents per share from 27 cents per share. The Zacks Rank #3 company also plans to cut capital spending nearly 50% from the previous year while reducing its U.S. onshore rig count by 80%.   

    3.  Devon Energy Corp. DVN: Lower oil prices also forced Devon Energy to slash its dividend by 75% to 6 cents a share. The large-cap energy explorer, sporting a Zacks Rank #3, also announced plans to lay off 20% of its workforce in the first quarter, apart from reducing 2016 capital spending by three-fourths to a range of $900 million to $1.1 billion.

    4.  Cimarex Energy Co. XEC: Another U.S. producer pruning cash dividend in the wake of collapsing energy prices is Denver, CO-based Cimarex Energy. The Zacks Rank #3 company said that it will lower its quarterly cash dividend by 50% to 8 cents per share. Additionally, Cimarex Energy scaled back this year’s capital spending to $600-$650 million, 29% less than 2015. 

    Preserving Cash Now = Better Investment Later

    The uncertainty of oil prices means that the future direction of the commodity’s movement is anybody's guess. However, fundamentals suggest that the odds are firmly stacked against a sustained rally. Therefore, dividend cuts might actually be a smart move, even at the risk of shares being sold off on the announcement.

    It might be wise for investors to take a long-term view of the dividend cut announcements rather than get swayed by the short-term pain that it brings. In fact, the suspension/cut in payouts will ensure that more money can be put back into the company, making it stronger, financially healthier, and possibly a better income investment for the future. Finally, it is in the best interests of the shareholders to sacrifice the dividend rather than hang on to one stubbornly that might ultimately prove unsustainable.

    Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


    Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
     
    DEVON ENERGY (DVN): Free Stock Analysis Report
     
    ANADARKO PETROL (APC): Free Stock Analysis Report
     
    CIMAREX ENERGY (XEC): Free Stock Analysis Report
     
    CONOCOPHILLIPS (COP): Free Stock Analysis Report
     
    To read this article on Zacks.com click here.
    View Comments (6)