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The potential for COVID-19 vaccines in the new year has buoyed oil and gas markets in recent sessions, but that more upbeat oil-demand outlook is still not enough for Exxon Mobil Corp. to fund its dividend entirely from operating cash flow.
That’s according to Pavel Molchanov, an analyst at Raymond James, who in a note Friday sketched three approaches Exxon
XOM,
a rare “dividend aristocrat” that has paid dividends for decades without interruption, could could take to dividend payouts going forward.
Exxon “faces a rather unenviable choice,” Molchanov said in the note.
It could break its pledge to eschew more debt, “which is feasible but would cost management credibility.”
It could sell assets, likely to be sold at a less-than-ideal price, and use the money to support the dividend. That’s “the most probable solution,” but one that is not sustainable in the long run, Molchanov said.
Finally, Exxon could take the “radical approach of cutting the dividend, which we do not believe will happen at least over the next 12 months,” the analyst said.
For now, Molchanov kept its rating on Exxon at the equivalent of sell, which compares with an average rating of hold among the 25 analysts polled by FactSet.
He said he expects the company’s cash balance to hover around $3 billion by the end of the fourth quarter, which is about as low as Exxon lets it be.
Exxon hinted at possible asset sales during a conference call with analysts after it reported third-quarter results last month, saying it was “working” to keep the dividend intact while holding the line on debt.
The stock has fallen 42% this year, which contrasts with a gain of around 13% for the benchmark S&P 500 index
SPX,
The SPDR Energy Select Sector exchange-traded fund XLE has lost 35% in the period.