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Exxon Freezes Dividend for First Time in 13 Years Amid Crash

Kevin Crowley
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Exxon Freezes Dividend for First Time in 13 Years Amid Crash

(Bloomberg) -- Exxon Mobil Corp. froze its dividend for the first time in 13 years as the lowest oil prices in a generation strain the company’s financial underpinnings.

Exxon will pay 87 cents a share in June, unchanged from March’s outlay, the Irving, Texas-based company said in a statement on Wednesday. Before now, Exxon had an uninterrupted streak of April increases going back to 2007.

The Western Hemisphere’s largest oil company was slammed by Covid-19 lockdowns that obliterated energy demand and forced Exxon to scale back an ambitious investment program. The explorer slashed its 2020 capital budget by $10 billion to conserve cash, but in light of the continued deterioration in energy markets, it wasn’t enough to support higher payouts.

The freeze may not derail Exxon’s multi decade streak of annual increases. Even if the company maintains quarterly payouts at the current level for the rest of 2020, the annual outlay will be $3.48 a share, or 1.5% above 2019.

“It’s definitely a sign of the times and to be expected given the price environment,” said Jennifer Rowland, an analyst at Edward D. Jones & Co. The payout is “secure” because the company has capacity to take on debt to fund it, she said. On an annualized bases, the dividend will cost Exxon almost $15 billion this year.

After trimming capital spending, Exxon had few levers left to pull to protect the dividend. Unlike rivals such as Royal Dutch Shell Plc and Total SA that are saving cash by crimping share buybacks, Exxon sacrificed those during the last crash in 2016.

Norway’s Equinor ASA became the first large oil company to cut dividends amid an historic, virus-drive market rout. Most analysts expected the world’s largest Western supermajors, including Exxon, to defend their dividend at almost any cost given how important the payouts are to North American investors.

Before today, Exxon was the third-largest dividend payer in the S&P 500 Index behind Microsoft Corp. and AT&T Inc., according to data compiled by Bloomberg.

(Updates with analyst’s comment in fifth paragraph.)

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