Are Big Oil dividends safe with lower priced oil?

[Mulligan]

I have been thinking about putting my extra "fun investment" money in either Exxon, Chevron, or RD Shell. All I want is the juicy dividend and for it not to be cut. I have read big oil dividends are safe at this level of 80, but no explanation was given. Earnings and coverage ratios don't mean much with the way their capital spending budgets can be manipulated. Just curious if anyone has been looking to buy in this area. Exxon was my initial thought but that RDS.B dividend well over 5% is very tempting. I read last week their CEO said they were fully committed to increasing their dividend, but when I was 21 I was fully committed to never losing any of my hair and that didn't work out so well.


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[aja8888]

Dividend commitments can change from day to day. I'd wait a while to see where oil settles out before jumping into an oil stock. I remember Exxon at $28 a few years back.

Why not AT&T or VZ? These guys own the market and are pretty steady.

Or a dividend ETF?

 

[EastWest Gal]

I've been happy with oil stock. My dad worked for Chevron and he lived on dividends and SS. Go to their website and look at investor relations. You can look at historic price look up, dividend history and stock split history. I'm expecting a stock split before long. The last time there was a split the dividend was in 2004 and the price and dividends are well over the last time there was a split. The dividend increased every year for the past 27 years. Will that continue? Not forever, of course. It is at an all time high right now at $1.07/quarter. I kept some of dad's stock so I've been following Chevron for years. I think Exxon is similar, but I don't follow it at all.


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[redduck]

I have been thinking about putting my extra "fun investment" money in either Exxon, Chevron, or RD Shell. All I want is the juicy dividend and for it not to be cut....
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Well, I hope those dividends are safe. I own all three companies that you mentioned and added to what I already owned to both Exxon and Chevron earlier this week. RD Shell has tax withholding that I am not quite able to explain, so won't try.

Value Line rates the three companies with a 1 for safety and A++ for financial strength. That's as high as it goes with Value Line ratings.

 

[Mulligan]

Dividend commitments can change from day to day. I'd wait a while to see where oil settles out before jumping into an oil stock. I remember Exxon at $28 a few years back.

Why not AT&T or VZ? These guys own the market and are pretty steady.

Or a dividend ETF?

That is a good question why I don't look at the telecoms. I guess because I think something will go wrong with them, and Big Oil you can historically just ride it out. Yes, the smart thing would be to put into an ETF or mutual, but I am hellbent on buying a stock since my last little play in Intel scored big for me.

Like East West mentioned the big oil dividends keep rolling in, or at least have. Exxon has raised theirs for over 30 consecutive years and there have been a few oil crashes during that time. Chevron isn't far behind. Exxon low point in last 10 years was $50 and that was in 2004.


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[Mulligan]

Well, I hope those dividends are safe. I own all three companies that you mentioned and added to what I already owned to both Exxon and Chevron earlier this week. RD Shell has tax withholding that I am not quite able to explain, so won't try.

Value Line rates the three companies with a 1 for safety and A++ for financial strength. That's as high as it goes with Value Line ratings.

Redduck, If you buy the class B shares RDS.B they do not have the withholding and are taxed at the 15% rate. And it's rate is 5.36% compared to XOM at a little over 3%. XOM's coverage ratio is a lot better though.


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[brewer12345]

Cannot speak for Royal Dutch, but last I checked Exxon had a Aaa-rated balance sheet. I think it would take a lot more than a minor oil price drop to put their dividend in peril.

 

[Running_Man]

Exxon and Chevron dividend's should be fine, the large integrated companies such as these two make more money on refining margins as oil prices drop buffering their earnings and protecting the dividend. Chevrons dividend as a percentage of earnings has been rising in recent years so a prolonged downturn in oil prices would probably cause dividend increases to be very small but there is little on the middle term (1-2 years) to expect a dividend cut.


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[clifp]

To put some numbers to show you the relative safety of their dividends

Exxon Earning 44 Billion Dividend 11 Billion
Chevron Earnings 21.6 Billion Dividend 7.6 billion
Shell Earnings 16.5 Billion Dividends 7.4 billion

For comparison
Apple Earnings 37B Dividends 10.5B

 

[heeyy_joe]

I just had this same scenario this week on whether to add oil or choose another dividend payer. Decided to buy VZ (dividend yield 4.5%).

 

[Totoro]

All I want is the juicy dividend and for it not to be cut.

Then why Oil? Just take a decent subset of the dividend aristocrats (including oil).

Added benefit of diversification so you don't have to count as much on something that is unknowable (future profitability of oil sector).

 

[Mulligan]

Then why Oil? Just take a decent subset of the dividend aristocrats (including oil).

Added benefit of diversification so you don't have to count as much on something that is unknowable (future profitability of oil sector).

I don't have a logical reason other than maybe it was one of the few of my stock dabbling adventures over the years that I have made decent money on. The features of what I want could be gotten in other areas. Historically PE ratios are lower than market for oil, but I can't get over the idea of the high PE for stocks like JNJ, P&G, Clorox, etc for their dividend.


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[rbmrtn]

They seem to have their dividends well covered. I've had CVX for a long time.
I took a leap and added to some MLP holdings Wednesday late, they bounced nicely.

 

[nuke_diver]

That is a good question why I don't look at the telecoms. I guess because I think something will go wrong with them, and Big Oil you can historically just ride it out. Yes, the smart thing would be to put into an ETF or mutual, but I am hellbent on buying a stock since my last little play in Intel scored big for me.

Given the way people are with their phones I think they'd give up their cars before they give up their phones.. Telecom might be safer. I have been looking at Oil for dividends but haven't decided yet. I already have a position in AT&T and it's been good from a dividend and long term growth (I got it quite a while ago)

 

[Mulligan]

Given the way people are with their phones I think they'd give up their cars before they give up their phones.. Telecom might be safer. I have been looking at Oil for dividends but haven't decided yet. I already have a position in AT&T and it's been good from a dividend and long term growth (I got it quite a while ago)

That is where I admit I don't understand telecoms. I read how much debt they carry and I keep thinking plans like Straight Talk and Virgin will run them down, but obviously I am not correct.


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[MooreBonds]

Redduck, If you buy the class B shares RDS.B they do not have the withholding and are taxed at the 15% rate. And it's rate is 5.36% compared to XOM at a little over 3%. XOM's coverage ratio is a lot better though.


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I'm a little lost between the various share classes and ADS shares...you might want to verify that - I have Class B shares in my IRA, nd found out the hard way that after this past June's dividend payment, RDS eliminated the "no withholding" provision (since they are able to more efficiently use the cash to buyback shares instead of paying the withholding taxes to the gov't on your behalf, or something like that), and I had foreign taxes withheld on the most recent dividend payment.

Here's their press release:

Shell announces cancellation of Scrip Dividend Programme from second quarter 2014 - Shell Global

 

[Mulligan]

I'm a little lost between the various share classes and ADS shares...you might want to verify that - I have Class B shares in my IRA, nd found out the hard way that after this past June's dividend payment, RDS eliminated the "no withholding" provision (since they are able to more efficiently use the cash to buyback shares instead of paying the withholding taxes to the gov't on your behalf, or something like that), and I had foreign taxes withheld on the most recent dividend payment.

Here's their press release:

Shell announces cancellation of Scrip Dividend Programme from second quarter 2014 - Shell Global

Most of the info I read predates this. But everything I read said to buy the B's for tax differed accounts. That may not be correct now. I know now they are buying back A shares. People used to buy A shares because they would let you take more shares instead of the cash dividend. I guess that has changed. When those 2 companies merged they created more types of shares than a dog has fleas. Can you file anything to recapture the money?


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[clifp]

Given the way people are with their phones I think they'd give up their cars before they give up their phones.. Telecom might be safer. I have been looking at Oil for dividends but haven't decided yet. I already have a position in AT&T and it's been good from a dividend and long term growth (I got it quite a while ago)

I do have a small position in AT&T, (and Mom's had good size position in AT&T for 60 years...) and I do agree that most Gen Y would certainly rather give up their cars than their cellphones.

That said the Telecom companies tend to be highly leverage while the big oil are for the most part practically debt free. For instance AT&T has almost $70 billion in long term debt and amount which is slowly growing, while the much larger Exxon has less than $8 billion.

On the other hand their seems to be a lot more price competition in the oil market than telecom.

 

[Mulligan]

I'm a little lost between the various share classes and ADS shares...you might want to verify that - I have Class B shares in my IRA, nd found out the hard way that after this past June's dividend payment, RDS eliminated the "no withholding" provision (since they are able to more efficiently use the cash to buyback shares instead of paying the withholding taxes to the gov't on your behalf, or something like that), and I had foreign taxes withheld on the most recent dividend payment.

Here's their press release:

Shell announces cancellation of Scrip Dividend Programme from second quarter 2014 - Shell Global

MooreBonds, Are you a 100% sure you have RDS.B in your IRA? The reason I ask is this article is from just last month and it aligns with what I have been reading. I'm just double checking as I'm sure you know more about this than me, but this recent article goes with I read earlier. I did buy a few shares of RDS.B for my HSA account right in time to catch part of the dive. But I haven't had them long enough to capture a dividend yet.

Choosing the rights shares
Most companies only have one country that's treated as their tax home, but some companies offer their investors multiple classes of shares with different tax domiciles. Royal Dutch Shell is one example with Royal Dutch Shell Class A Shares (NYSE: RDS-A ) being hit with a 15% Dutch dividend withholding tax and Royal Dutch Shell Class B Shares (NYSE: RDS-B ) taking advantage of the U.K.'s 0% dividend withholding tax.

For investors holding shares in an IRA this can make the difference between a 15% tax rate and getting your dividend tax free. However, the market has already partially priced this difference in as the Class B shares trade at a premium of almost 5% over their Class A counterparts. When calculating which investment is best for your portfolio, be sure to take both taxes and share price premiums into account.

http://www.fool.com/how-to-invest/p...o-avoid-foreign-dividend-withholding-tax.aspx




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[eta2020]

Cannot speak for Royal Dutch, but last I checked Exxon had a Aaa-rated balance sheet. I think it would take a lot more than a minor oil price drop to put their dividend in peril.

+1
They will do their best to preserve being company that increases dividend every year. So I would expect dividend going up.....

But yes 80 dollar oil will hurt them.

 

[Running_Man]

Some types of drilling are more safe than others

 

[bad_LNIP]

Yes, the smart thing would be to put into an ETF or mutual, but I am hellbent on buying a stock since my last little play in Intel scored big for me.

Why not just go with a MLP that yields 2-3x what you are getting or a MLP CEF? They have all been beat the heck down over the last month or so.

 

[DoWright]

RDS/B
Value Line Safety Rating: 1
Value Line Timeliness Rating: 2
Value Line Financial Strength Rating: A++
Morningstar Discount to Fair Value: 3%
Dividend Yield: 5.10%

CVX
Value Line Safety Rating: 1
Value Line Timeliness Rating: 2
Value Line Financial Strength Rating: A++
Morningstar Discount to Fair Value: 15%
Dividend Yield: 3.70%

XOM
Value Line Safety Rating: 1
Value Line Timeliness Rating: 3
Value Line Financial Strength Rating: A++
Morningstar Discount to Fair Value: 16%
Dividend Yield: 2.89%

T
Value Line Safety Rating: 1
Value Line Timeliness Rating: 3
Value Line Financial Strength Rating: A++
Morningstar Discount to Fair Value: 0%
Dividend Yield: 5.40%

VZ
Value Line Safety Rating: 1
Value Line Timeliness Rating: 1
Value Line Financial Strength Rating: A++
Morningstar Premium to Fair Value: 7%
Dividend Yield: 4.45%

All five are rated as A++ for financial strength by Value Line; their highest rating. Few companies get this ratings, currently there are 85 companies that Value Line rates with an A++ for financial strength.

Three of the five, the three oil companies, are all currently priced at a discount to Morningstar's fair value for them. The telecom companies are currently priced at, or above, Morningstar's fair value.

Personally, I like to invest in companies that have strength financials, are considered safe, have strong and growing dividend, and when I buy, I like to buy at a significant discount to fair value. While they all have very appealing dividend yields, none of these companies are priced low enough for me to establish a position today, but that's just me. You need to make your own decisions.

 

[maloney50]

I'd suggest the vanguard high div yield ETF. The yield is almost 3 percent and you will find Exxon,chevron and other high quality names in the portfolio without the single stock risk. If you want to stick to energy, the vanguard energy Etf is on Morningstar's short list of recommended ETFs.


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[DoWright]

I'd suggest the vanguard high div yield ETF. The yield is almost 3 percent and you will find Exxon,chevron and other high quality names in the portfolio without the single stock risk. If you want to stick to energy, the vanguard energy Etf is on Morningstar's short list of recommended ETFs.


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Very reasonable, sound suggestions