Exxon Mobil (NYSE: XOM) hiked its dividend by two cents to 77 cents marking more than 30 straight years of consistent dividend increases that outpace all its major rivals. The latest increase came on the backdrop of the company’s annual strategy presentation at the New York Stock Exchange in March where CEO Darren Woods sought to reassure investors and analysts about his commitment to dividend growth.
‘Exxon is geared to deliver sustainable, long-term shareholder value,” Woods said during the event. “We are committed to paying a reliable and growing dividend over the long term.” The first quarter earnings report, expected to be released on the 28th of April, will be closely watched, considering it's Woods’ first quarter at the helm since taking over for Rex Tillerson who is now U.S Secretary of State.
Of the $22.1 billion in operating cash flow that Exxon generated last year, $19.3 billion was spent on capital expenditures while $12.5 billion went into shareholder payouts which is what has been getting some analysts concerned.
Can Exxon sustain the dividend hike?
Over the past 24 months or so, Exxon’s Free Cash Flow has been fluctuating considerably and has even gone into negative territory, twice forcing a section of analysts to question whether a dividend hike at this current time is prudent.
In addition to the increased pressure brought on by the higher payout, it also appears that improved crude Oil Prices may not end up being as great as some shareholders would like to believe, at least in the short term.
In the first quarter of 2017, crude prices averaged about $52 per barrel compared to average prices of $26 per barrel during the first quarter of last year, positioning Exxon at a significant advantage of reaping huge returns.
As a matter of fact, according to analysts surveyed by Bloomberg, Exxon may generate the best profit in 14 years for the current quarter.
A number of the analysts expect net income to rise to about $3.8 billion with free cash flow rising to $5.31 billion for the quarter.
However, it is important to note that improving oil prices poses a threat to one of its other divisions which could impact earnings down the line. Exxon’s downstream operations basically saved it when oil prices bottomed out last year by taking advantage of the lower prices.
Thanks to higher feedstock costs, increasing gasoline glut and crack spreads (difference between oil prices and petroleum products like gasoline or diesel) margins in this division have been under massive pressure and investors will undoubtedly keep a keen eye on it. Earnings from this division fell about 8 percent last quarter but could fall further if more supply is brought to the market.
