Now that the first major oil company has slashed its dividend, what other energy companies could be planning to do so, and whose dividends are safe?
ConocoPhillips on Thursday cut its quarterly dividend from 74 cents per share to 25 cents per share.
“While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time,” CEO Ryan Lance said in a statement. “The decision to reduce the dividend was a difficult one.”
In some ways, Wall Street expected the news. ConocoPhillips’ stock was one of the worst performers in the sector, falling over 40 percent in the past 12 months. But the magnitude of the cut was larger than expected and hints that even better performing names may be forced to cut their payouts in the coming months.
“I think dividend cuts still unnerve people, but stocks like ConocoPhillips arguably already discounted it. Occidental Petroleumwon’t slash. Everyone else is fair game,” Brean Capital’s Roberto Friedlander said in an email.
To figure out who is most at risk and who is not, Valuentum Securities, an independent investment research firm, created a proprietary “Dividend Cushion” ratio. It quantitatively measures a company’s ability to cover its dividend obligations using such factors as free cash flow generation and cash on its balance sheet.
The firm’s ratio data and analysis foreshadowed ConocoPhillips dividend cut. Here are the Dividend Cushion ratios for the other major oil and gas stocks and what the analyst says is the safest company.