On March 5, Exxon (XOM) reaffirmed its contrarian plans to boost its capital spending in the years ahead with hopes of doubling its earnings power between 2018 and 2025: "Capacity investments have overwhelmed the growth in demand, leading to the down cycle and waiting for demand to catch up. These are typical cycles. Unfortunately, they're hitting multiple businesses at once, creating a short-term issue. That, unfortunately, is impacting short-term industry earnings...We expect these down markets to discourage industry investment, setting a stage for a significant upswing. And we believe the best time to invest in these businesses is during a low, which will lead to greater value capture in the coming upswing. You can do that if you have the opportunities and [...]

LyondellBasell's (LYB) origins date back to the 1950s when breakthrough discoveries were made in synthesizing petrochemicals. Today, LyondellBasell is one of the world’s largest diversified chemical suppliers and refiners. The heart of LyondellBasell's business is converting fossil fuels into plastic resins and other petrochemicals that are sold to manufacturers and eventually turned into food packaging, home furnishings, clothing, tires, automotive components, fertilizers, paints, and much more. Petrochemicals are everywhere in modern society. In many parts of the world, crude oil is the feedstock of choice in the production of petrochemicals due to oil's accessibility and low cost. As a result, petrochemical prices are generally tied to the price of oil. However, LyondellBasell has a large presence in the U.S., where [...]

The price of oil plummeted as much as 30% last weekend as Saudi Arabia and Russia engaged in a price war that threatens to take market share from higher-cost U.S. shale producers. We analyzed this event in a note here, but the bottom line is that we believe oil prices could now remain at historically weak levels (i.e. $35 per barrel or lower) for at least a few quarters, if not for more than a year. Many oil producers are unprofitable at prices this low. Even the largest energy companies will likely further reduce their planned spending in this environment, painting a rather bleak outlook for the firms that do business with them. Some analysts expect upstream capital expenditure budgets to [...]

Boeing's (BA) timeline for returning its best-selling 737 MAX plans to commercial service likely took another hit this week, as the Federal Aviation Administration is expected to order certain electrical wires relocated inside the jets, accordingto the Wall Street Journal. Meanwhile, the coronavirus is weighing on travel demand and the financial health of Boeing's airline customers. Not only is this bad for new plane orders, but it could pressure the ability of some customers to make advanced payments to support production of their jets that are under construction. Given Boeing's increasingly fragile state and the rising uncertainty facing the company, we are downgrading the company's Dividend Safety Score from Borderline Safe to Unsafe. We also plan to exit our Boeing position today in our Top [...]

Oil prices plunged as much as 30% last weekend as Saudi Arabia and Russia engaged in a price war that threatens to take market share from higher-cost U.S. shale producers. We analyzed this event in a note here, but the bottom line is that we believe oil prices could now remain at historically weak levels (i.e. $35 per barrel or lower) for at least a few quarters, if not for more than a year. If such an environment persists, then Royal Dutch Shell (RDS.B) seems likely to struggle to both improve its balance sheet and continue its streak of paying uninterrupted dividends as it has since World War II. In light of this development, we are downgrading Shell's Dividend Safety Score [...]

The International Air Transport Association (IATA) now expects the coronavirus to cause the global air transport's 2020 revenue to fall between $63 billion and $113 billion, or as much as 20%.  This is expected to pressure the cash flow of most airlines, which are very sensitive to changes in demand due to their high fixed costs.  While Delta Airlines (DAL) remains one of the strongest operators, we are downgrading the company's Dividend Safety Score from Safe to Borderline Safein order to be conservative and better recognize today's increasingly difficult environment. Many airlines have announced capacity reductions and emergency cost reduction measures to conserve cash during this challenging time. Delta is no exception. On March 10, the company responded to the decline in traffic demand by announcing international [...]

On February 25, we downgraded Carnival's (CCL) Dividend Safety Score to Borderline Safe. Our full note here is worth reading for more background on Carnival's situation, but in our conclusion, we wrote: Cruise demand will take a hit for some period of time, but barring a major setback, Carnival appears to have the financial strength necessary to ride out the storm for a while... With that said, a prolonged slump in cruise demand would sap Carnival's cash flow during a period of peak investment, resulting in poor dividend coverage for several years. While Carnival's long-term outlook would likely remain intact, the high level of uncertainty facing management could cause the dividend to come under pressure out of financial conservatism...Conservative income investors who are comfortable owning [...]

Canadian Imperial Bank of Commerce (CM) CEO Victor Dodig was interviewed by BNN Bloomberg this afternoon and gave a strong vote of confidence to the bank's dividend: We've never cut a dividend since 1868. Our goal is to make sure those dividends are flowing...The Canadian investors that invest in our banks rely on those dividends for income. And every source of reliable income that we can provide Canadians and Americans and our other shareholders that are investing in our banks is incredibly important at this moment in time where cash flow reduces anxiety. Talk is cheap and the worst of the economic slump is likely ahead of us, but Mr. Dodig's comments suggest that Canadian banks and their regulators continue to have [...]

EQM Midstream Partners, LP (EQM) announced plans to merge with its general partner Equitrans Midstream (ETRN) in an all-stock transaction, continuing the trend of MLP simplifications. Each unit of EQM would be exchanged for 2.44 shares of ETRN stock.  The exchange ratio represents only a 3% premium based on EQM's average price over the 20 days leading up to the deal's announcement. Making matters worse for income investors, it also means EQM unitholders will face an effective distribution cut of nearly 70%. EQM paid annual distributions of $4.64 per unit, whereas ETRN's annual dividend was lowered to $0.60 per share. After receiving 2.44 shares of ETRN stock for every unit they hold, EQM investors will earn a comparable dividend of $1.464 per unit [...]

In August 2019, we published a note about MPLX (MPLX) and some of the challenges weighing on the stock, including low natural gas prices, questionable acquisition decisions, and Marathon Petroleum's (MPC) control over MPLX. One month after our note was published, activist investor Elliott Management pressured Marathon Petroleum to split its conglomerate business up with hopes of unlocking value. As we recently discussed here, Marathon's management team then announced plans to spin off its Speedway convenience stores and review strategic alternatives for its midstream business, which primarily consists of its 63% stake in MPLX's limited partner units and ownership of MPLX's general partner interest. MPLX unitholders are understandably nervous about Marathon's reevaluation of its relationship with MPLX. Marathon expects to provide an update by the [...]