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Halliburton Cuts Dividend in a Drastic Step to Preserve Cash

Zacks Equity Research

Considering the coronavirus-induced weakness in the energy market amid the plunge in crude prices so far this year, the health of the oilfield service sector has taken a big hit. They are reeling under a heavy debt burden and declining cash flows, which are weighing on their near-term credit quality. This, in turn, is making survival for the concerned companies difficult as the oilfield service market in North America is highly competitive.

The slump in oil prices ramped down drilling activity by inducing uncertainty around the exploration and production (E&P) spending outlook. As supplier of technology, solution and parts to the E&P sector, the sentiment toward the oil services firms is rather pessimistic. While the smaller players are expected to go through a rough patch, the large-cap entities like Schlumberger SLB and Halliburton HAL, who are more poised to regain their credit strength, announced a set of stringent measures.

In the wake of oil price plunge, Halliburton Company recently announced that the board of directors decided to slash quarterly dividend for the second quarter of 2020 by 75% to 4.5 cents from the current level of 18 cents. This dividend is payable Jun 24, 2020 to its shareholders of record on Jun 3. The dividend cut is anticipated to help this Zacks Rank #3 (Hold) company achieve its purpose of preserving cash and maintaining ample liquidity amid the virus mayhem. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Halliburton Company Price

Halliburton Company Price
Halliburton Company Price

Halliburton Company price | Halliburton Company Quote

This Houston-based oilfield service provider realized that in order to enhance its operating efficiency despite the challenging market conditions, it has to curtail costs substantially.

Halliburton’s board agreed on a 20% voluntary cutback in its annual pay. The move follows the company’s plans to trim its executives’ income and stall certain contributions made to employee retirement accounts.

To safeguard its cash position, the company reduced its 2020 capital expenditure by nearly 50% compared with the prior-year levels.  It even implemented a $1-billion action plan to lower overhead and other expenses.

In a nutshell, the oilfield service fundamentals remain extremely bearish with most of the companies entirely focused on survival. From Core Laboratories CLB to ProPetro Holding to Oceaneering International OII, all company boards have adopted various strategies to survive the economic downturn. They have been lowering capital spending, furloughing employees and cutting executive pays.

While much uncertainty revolves around the spread and duration of the contagion, cash is the king for businesses and investors alike, given the rising odds of a recession in 2020.

Amid the ongoing unprecedented crisis, many companies will be forced to decrease dividends to conserve liquidity. So, until the fog clears/sky gets cleared, investors should brace up for more dividend cuts or even suspension.

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Schlumberger Limited (SLB) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
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Core Laboratories N.V. (CLB) : Free Stock Analysis Report
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