By Alex Kimani
Crude oil futures have rallied to their highest finish in six weeks, days after OPEC+ stuck with plans to gradually ease production curbs, signaling confidence in the demand outlook. The optimism has coincided with a breakout season for the S&P 500, with the Energy Sector (XLE) being particularly impressive.
Indeed, Credit Suisse has issued an upgrade for the entire market, boosting its 2021 S&P target to 4,600 from 4,300 points, good for 10% upside from the current levels and a 24.3% gain for the full year. The analysts have also hiked their 2021 EPS to $200 from $185 and 2022 to $215 from $210, even after factoring in a 4-5% hit on 2022 earnings due to an expected tax hike.
The fossil fuel sector is enjoying a rare blowout season.
The majority of companies in the energy sector that have returned their earnings scorecard have beat Wall Street earnings estimates, while 82% have managed to surpass revenue expectations.
Even more surprising is the manner in which the sector is making all those prognostications of doom and gloom appear premature: The energy sector is beating earnings expectations by an average margin of 335%, by far the widest margin by any sector, with second-placed Consumer Discretionary sector only managing a 44% beat.
America’s largest energy infrastructure company, Kinder Morgan Inc. (NYSE:KMI), has so far reported the biggest positive EPS surprise among energy companies, with GAAP EPS of $0.62 easily besting the consensus of $0.23 while revenue of $5.21B (+67.5% Y/Y) beat by $2.17B.
With impressive bottom-line growth, many top energy names are rewarding investors with fatter dividends with no energy company announcing a dividend cut so far. Here’s a rundown of Big Oil’s dividend trends after the latest earnings report.
Marathon Oil Corp.
Market Cap: $8.9B
YTD Share Returns: 68.8%
Dividend Yield (FWD): 1.42%
Marathon Oil Corp. (NYSE:MRO) is one of the leading E&P companies and the owner of the nation’s largest refining system, with approximately 2.9 million barrels per day of crude oil processing capacity across 13 refineries.
Marathon Oil has yet to report Q1 earnings, but has reported some encouraging preliminary information on Q1 financial and operational estimates and also announced a good dividend hike.
Marathon Oil says Q1 production clocked in at 345K net boe/day with sales of 341K net boe/day. Q1 cash flow from operations totaled $610M-$630M, representing $10M-$20M of negative changes in working capital. Meanwhile, first quarter unhedged realizations came in at an estimated at ~$55/bbl for oil; $24/bbl for natural gas liquids and $6.30/mcf for natural gas.
The best part: Marathon Oil has declared $0.04/share quarterly dividend payable June 10 and good for a 33.3% increase from the previous dividend of $0.03 per share. MRO stock now sports a forward dividend yield of 1.42%, suggesting there’s room for further hikes.
Marathon Oil’s close peer, Valero Energy Corp. (NYSE:VLO), sports a much higher yield of 5.30%. Valero has declared $0.98/share quarterly dividend, in line with the previous distribution and payable June 8.
Valero reported GAAP EPS of -$1.73, beating the consensus estimate by $0.12, while revenue of $20.8B (-5.9% Y/Y) beat by $1.23B.
Market Cap: $66.1B
YTD Share Returns: 23.5%
Dividend Yield (FWD): 2.96%
Norway’s national oil company, Equinor ASA (NYSE:EQNR), delivered an all-around impressive report and its best quarterly results since 2014.
Adjusted earnings clocked in at $5.47 billion in the first quarter, a 167% Y/Y improvement compared to the same period in 2020; Adjusted earnings after tax were $2.66 billion up from $560 million, while revenue of $16.13B (+7.0% Y/Y) beat by $340M.
According to company President and CEO, Anders Opedal, Equinor largely benefitted from recovering oil and gas prices, helping to improve net cash flow above $5 billion and reduce adjusted net debt ratio to below 25%.
The best part: Equinor increased its quarterly dividend by 25% to $01.5 per share to bring the forward yield to 2.86%.
Royal Dutch Shell
Market Cap: $143.9B
YTD Share Returns: 8.14%
Dividend Yield (FWD): 3.65%
Anglo-Dutch oil and gas supermajor Royal Dutch Shell Plc. (NYSE:RDS.A) returned disappointing results, missing on both top-and bottom-line expectations.
Q1 2021 earnings of $3.2 billion represented a 10.3% improvement over the same period a year earlier; however, GAAP EPS of $0.72 fell short of Wall Street’s expectations by $01.9. Shell’s topline was equally disappointing, with revenue of $55.67B (-7.3% Y/Y) missing by $6.51B.
Nevertheless, Shell managed to raise its dividend by 4.2% to $0.347/ADS quarterly dividend, marking the second time in six months it has hiked the payout.
Shell also announced that it had managed to reduce net debt by more than $4 billion last quarter, progressing towards the $65 billion milestone to increase shareholder distributions.
Market Cap: $198.7B
YTD Share Returns: 22.1%
Dividend Yield (FWD): 5.20%
At a time when the vast majority of oil and gas companies have been reporting blowout earnings, America’s second-largest E&P company, Chevron Corp. (NYSE:CVX), was a notable laggard, missing on both top-and bottom-line expectations despite managing to swing to a profit.
Chevron reported Q1 2021 Q1 GAAP earnings dropped to $1.38B, or $0.72/share, from $3.6B, or $1.93/share, in the year-ago period. GAAP EPS of $0.72 was 0.16 below the consensus while revenue of $31.07B (+4.6% Y/Y) missed by $1.48B.
A big offender was Chevron’s refining and chemical units, which reported a Q1 profit of just $5M vs. a $1.1B a year ago, which the company attributed to the February winter storm in Texas as well as the continuing impact of the pandemic.
Meanwhile, Q1 production of 3,121 was below the consensus of 3139 Mboe/d.
Still, Chevron declared $1.34/share quarterly dividend, good for a 3.9% increase from the prior dividend of $1.29. The shares now sport an impressive 5.20% forward yield.
Market Cap: $242.3B
YTD Share Returns: 38.9%
Dividend Yield (FWD): 6.08%
The United State’s largest integrated oil and gas company, ExxonMobil Corp. (NYSE:XOM), has reported Q1 2021 earnings on Friday morning in the pre-market session, managing to snap a long losing streak.
Exxon reported positive earnings of $2.7 billion, or $0.64 per share assuming dilution, compared to a loss of $610 million during last year’s comparable quarter. GAAP EPS of $0.64 exceeded the Wall Street consensus by $0.07 while revenue of $59.15B (+5.3% Y/Y) beat by $2.61B.
Exxon’s oil-equivalent production of 3,787 Mboe/d came in below the consensus of 3,802 Mboe/d but still represented a 3% improvement from the fourth quarter of 2020. Natural gas volumes increased 12% mainly driven by higher seasonal demand in Europe.
Exxon says industry fuels margins improved considerably from the fourth quarter, but still remain below 10-year-lows due to high product inventory levels as well as market oversupply.
The best part: Cash flow from operating activities clocked in at $9.3 billion, managing to fully fund the dividend and capital expenditures as well pay down debt by over $4 billion.
A week ago, Chevron declared $0.87/share quarterly dividend, in line with the previous payout but still good for an industry-leading 6.08% forward yield.
Market Cap: $22.8B
YTD Share Returns: 41.1%
Dividend Yield (FWD): 1.34%
Giant E&P company, Hess Corp. (NYSE:HES), emerged as yet another strong performer after managing to swing to a profit thanks to surging commodity prices.
Hess posted Q1 adjusted earnings of $252M, or $0.82/share, swinging from last year’s loss of $2.43B, or $8.00/share. GAAP EPS of $0.82 beat expectations by $0.47 while revenue of $1.92B (+40.1% Y/Y) beat by $230M.
Hess said that its Q1 average realized crude oil selling price excluding hedges surged to $52.52/bbl from $39.45/bbl in Q4 2020, while average realized natural gas liquids price jumped to $29.49/bbl from $15.80/bbl in the prior quarter.
Meanwhile, Q1 E&P capex fell by more than half from the prior-year quarter to $309M with the decrease driven primarily by a lower rig count in the Bakken.
Unfortunately, Hess cut its full-year production forecast excluding Libya to 290K-295K boe/day from prior guidance of ~310K boe/day, citing asset sales, lower volumes received on some contracts, and the impact of frigid weather in North Dakota.
Back in March, Hess declared a $0.25/share quarterly dividend, in-line with the previous dividend and good for a rather lowly 1.34% yield. Nevertheless, the stock has been getting some Wall Street love, after Mizuho Securities upgraded the shares to Buy from Neutral with a $94 price target from $76, citing the company’s “differentiated production and cash flow growth outlook.”
Market Cap: $37.8B
YTD Share Returns: 23.9%
Dividend Yield (FWD): 1.85%
Giant oilfield services company, Schlumberger Limited (NYSE:SLB) has posted rather flat earnings but still managed to exceed expectations. Q1 GAAP EPS of $0.21 beat by $0.02 while revenue of $5.22B (-30.0% Y/Y) beat by $110 million. Meanwhile, cash flow from operations of $429M came in below the consensus of $687.5M while free cash flow of $159M fell below the consensus of $231.7M.
Schlumberger declared a $0.125/share quarterly dividend, in line with the previous payout with a 1.85% forward yield.
The company’s management is optimistic about a recovery in drilling activity, and says it expects international activity to ramp up this year and beyond thanks to a rebound in global oil demand.