Well, it was nice while it lasted. After climbing for the past several days, energy stocks took a tumble as crude oil prices cooled off. Today’s pullback demonstrates just how shaky things still are in the energy patch.
Crude oil prices have rebounded 40% since mid-February, when it bottomed out at below $27 per barrel. However, as I mentioned in January, the energy sector’s troubles are far from behind it. The global oil markets are still awash in oil. In the United States, our massive crude oil facilities in Oklahoma are nearly at capacity, and major oil companies have completed projects in the Gulf of Mexico that will only increase the oil glut in North America.
There is renewed hope that OPEC nations will finally start cooperating to curb production and stabilize prices this year, but the damage has already been done in the energy sector. And as many of the world’s largest energy giants have felt the pressure, one of the first things to be sacrificed is their dividend payments.
Within the past several months, we have seen four major energy companies slash their dividends. They are: Anadarko Patroleum (APC), ConocoPhillips (COP), Chesapeake Energy (CHK) and Noble Energy (NBL). And we’re not just talking about minor cuts…
- Anadarko slashed its dividend by 81%, from $0.22 per share to $0.05 per share.
- ConocoPhillips cut its dividend by 66%, from $0.74 per share to $0.25 per share. This is the first time it has had to cut its dividend in 25 years.
- Chesapeake Energy chose the nuclear option back in July. The company completely did away with its dividend, in order to preserve its capital expenditure program.
- Noble Energy reduced its dividend by 44% from $0.18 per share to $0.10 per share. Noble Energy also halved its 2016 budget for capital spending.
As you may expect, if you run APC, COP, CHK and NBL through my Portfolio Grader tool (or my Dividend Grader tool, for that matter), the resulting grades aren’t pretty. Each and every one of these stocks is struggling to stay afloat, and should be avoided at all cost.
Unfortunately, the buck likely won’t stop with these four companies. Many are anticipating that Chevron (CVX) and Exxon Mobil (XOM) will follow suit, given that both companies suspended their stock buyback programs to conserve cash flow and prevent their credit rating from being downgraded.
So if you’re looking for high dividend yields, I’d tread very carefully in the energy sector. With oil prices as low as they are, very few dividends in the energy patch are safe. Tomorrow, I’ll feature my “diamond in the rough” energy play, one of the few exceptions to the rule. With a 12.5% annual dividend yield and A-ratings in both Portfolio Grader and Dividend Grader, this oil shipping company is navigating the choppy market admirably. More details to come tomorrow.