What happened
ExxonMobil‘s (NYSE: XOM) Shares fell about 5% at 3:00 pm EDT on Thursday. Weighing in the oil stock it was lower oil prices and a report that he is about to make deep cuts to preserve his dividend.
And that
Today, oil prices were under pressure with West Texas Intermediate (WTI), the main benchmark for US oil, closing the trading day with a drop of around 3.3%. That brought WTI below $ 40 a barrel, which was the first time it had broken that level in about three weeks. The main problem weighing on oil was the continued increase in COVID-19 cases, raising fears that governments will enact new closings. That would affect transportation, which accounts for about two-thirds of global oil demand.
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Another factor weighing on ExxonMobil shares today was a Reuters report that it is planning to spend heavily and cut jobs to preserve its dividend. The company currently pays $ 15 billion per year through a dividend that now produces a staggering 8.3%. While Exxon plans to cut spending to keep its dividend, it may not yet generate enough cash to cover the payment this year, given that oil prices are in these days. It is a concern because it means that the company will need to borrow money, which could put its balance sheet at risk. That is not sustainable, leading an analyst at Edward James to suggest that a dividend cut is “a real possibility in 2021.”
Now what
Exxon strives to keep its large dividend. However, you can’t rely on spending cuts and balance sheet to bridge the gap forever. Because of that, its great performance is on shaky ground until oil prices improve.
