Norway’s Equinor Slashes Dividends: Will Other Big Oil Companies Do Likewise?

[Tom Kirkman + 8,860]

Is this a trick question?

No really, is this a trick question?

News these days just keeps getting weirder.

 

What Is a Dividend?

A dividend is the distribution of a portion of the company's earnings, decided and managed by the company’s board of directors, and paid to a class of its shareholders.

 

In simple words, a dividend is a share of profits paid to a stockholder.

A big loss makes paying out a share of profits to stockholders a tad bit difficult.

 

Norway’s Equinor Slashes Dividends: Will Other Big Oil Companies Do Likewise?

KEY POINTS

• Equinor became the first major to reduce its dividend
• Equinor also suspended a $5 billion stock buyback plan and cut other costs
• Historically, large oil companies have been a steady source of dividend income

The collapse in global crude prices has compelled a major European oil producer to cut its dividend.

Equinor (EQNR), the state-controlled oil company of Norway, became the first major to reduce its dividend. On Thursday, Equinor said due to “this extraordinary situation” it will slash its latest quarterly dividend by two-thirds – from $0.27 per share to $0.09.

The move may herald similar measures by other European and U.S.  oil giants.

“It seems there is a chance that other majors will follow suit,” said Tamas Varga, senior analyst at PVM Oil Associates. “Clearly, suspending share buybacks and cutting [capital expenditure] does not do the trick anymore. In these turbulent times cash is king and the battle for remaining financially sound intensifies.”

Total SA (TOT) of France will announce its dividend decision on Friday, with Anglo-Dutch energy behemoth Royal Dutch Shell (RDS-A) set to unveil earnings next week.  ...

 

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“The purpose of the combined efforts, including a reduction in dividend, is to secure balance sheet capacity, strengthen liquidity and support continued investments in a high-quality project portfolio,” Equinor stated. “This provides for long-term competitive growth and shareholder value.”

Nick Coleman, senior editor at S&P Global Platts, said Equinor’s decision “certainly brings into focus the kind of pressures that the [oil] industry is under.”

But analysts at Bernstein were disappointed by the dividend cut.

“The move is one of extreme caution given the extraordinary market conditions rather than an expression of balance sheet weakness or credit rating pressure,” Bernstein analysts wrote.

The oil industry is facing an unprecedented scenario – on Monday, West Texas Intermediate futures for May delivery sank below zero for the first time ever. As the coronavirus pandemic has led to a lockdown across the globe, unwanted oil sits unused in storage facilities which are now at or near full capacity.

Historically, large oil companies have been a steady source of dividend income for stockholders – these firms have usually shied away from cutting dividends during difficult periods, choosing rather to raise debt.

The last time Equinor cut its dividend was during the recession of 2008-2009. After the 2014 oil price crash, Equinor offered a “scrip dividend,” whereby investors could receive shares instead of cash.

Equinor also said it may increase its dividend in the third quarter if economic conditions improve by then.  ...