Exxon believes its cash flow will cover capital expenditures and the dividend this year even if Brent oil prices average as low as $45 per barrel and its downstream and chemical businesses maintain their lowest margins in at least a decade. As part of the firm's earnings presentation on Tuesday, management laid out capital allocation priorities through 2025. Exxon's base plan this year expects Brent prices of $50 per barrel, but the firm highlighted its ability to flex its spending on short-cycle shale projects if market conditions change. Management believes this will enable dividend coverage and maintenance of balance sheet strength at Brent prices of $45 per barrel (versus $58 today) while allowing the firm to continue working on its largest and [...]

Chevron on Friday reported fourth-quarter earnings and showed continued progress improving the sustainability of its dividend in a low oil price environment. Driven by capital spending reductions and lower operating expenses, Chevron's breakeven oil price required to cover its capital program and dividend was under $50 per barrel for the second quarter in a row. That's down from $55 per barrel in 2019 and the $80s not long before that.  Chevron's breakeven price is especially impressive since it includes the poor performance of its downstream and chemicals businesses, which normally account for around 20% of firm-wide profits.  These cyclical divisions barely broke even last year since they are experiencing very low margins and weak volumes compared to their historical norms. Assuming they [...]

PPL last August announced plans to sell its U.K. utility operations, which generate a little over half of the firm's earnings. No deal has been announced yet, but the fate of PPL's regular dividend depends on how much of these earnings management can replace by using some of the proceeds from a potential sale to acquire a U.S. utility. For more information on PPL's divestiture plans, please see our note here. When PPL announced its plans, management expected to reach a deal in the first half of 2021. The company has not issued any updates on the sale process since August, but in November Reuters warned that a deal could be delayed due to uncertainty over whether the U.K. will leave the European [...]

Macro headwinds, slow-moving restructuring plans, and mounting legal liabilities have weighed on 3M's performance since CEO Michael Roman took the top job in July 2018. On Tuesday, the industrial conglomerate reported earnings which gave investors more confidence in 3M's plan to return to profitable growth following sales and earnings declines the last two years. Organic sales grew 6% in the fourth quarter, margins expanded, and free cash flow increased 16%. 3M's Safety & Industrial segment (34% of sales) reported 13% revenue growth thanks to strong pandemic-related demand for its respirator masks and air filters, but other parts of the business improved as well. Transportation & Electronics (25%) returned to growth after a challenging last two years, and Health Care (25%) delivered a 7% sales [...]

IBM shares slumped 10% on Friday following the company's fourth-quarter earnings report. IBM's organic sales fell 8%, marking the fourth straight quarterly decline, but investors were most concerned by a 7% drop in the Cloud & Cognitive Software segment. This high-margin division accounts for roughly 50% of IBM's gross profit and will become an even larger driver once the firm spins off its infrastructure services segment (25% of revenue) in late 2021. Cloud & Cognitive Software holds the foundational pieces of IBM's hybrid cloud and artificial intelligence (AI) strategy, which new CEO Arvind Krishna has bet the company's future on. Please see our October 2020 note for a detailed review of IBM's strategy.

In December, International Paper announced plans to spin off the firm's printing papers business into a standalone, publicly traded company. The spin-off is expected to be completed late in the third quarter of 2021, at which time shares in the spin-off will be distributed to International Paper investors. The transaction is expected to be tax-free for U.S. federal tax purposes. Printing papers account for close to 20% of International Paper's cash flow. As a result, International Paper expects to reduce its current dividend by 15% to 20% in proportion to the cash generated by the spin-off once the transaction closes. This will keep International Paper's payout ratio aligned with management's target of 40% to 50% of free cash flow.

The defensive utility sector has trailed the S&P 500 by more than 15% over the past year. Shares of Con Edison have been especially weak, slumping around 15% since mid-November to reach a level not far from their pandemic lows seen last March. With Con Edison's valuation looking unusually cheap compared to historical norms, some investors may be wondering if the stock is a value trap and could be at risk of changing its dividend policy. Management typically declares (and raises) Con Edison's first-quarter dividend on the third Thursday of January, so we will get an answer on the dividend as soon as tomorrow. Unless management expects a material deterioration in New York's regulatory framework, which seems unlikely at this [...]

Owens & Minor stunned many investors in October 2018 when it announced a 71% dividend cut. Shares fell more than 40% on the news as the medical supplies distributor broke its streak of paying uninterrupted dividends since 1977. The company's core customers (hospitals) were putting increased price pressure on the firm in an effort to cut costs, and several large customers chose not to renew their distribution contracts. As growth in its legacy business struggled, management attempted to stabilize earnings by making two large acquisitions in faster-growing segments, straining Owens & Minor's balance sheet and liquidity. Cutting the dividend gave Owens & Minor more breathing room to service its significant debt load while continuing to adapt its business model for [...]

Pfizer on Friday announced a 2.6% dividend increase for the first quarter of 2021, raising its quarterly payout from 38 cents per share to 39 cents.  However, the company still plans to lower its dividend to reflect the spin-off of its off-patent drug business (about 20% of profits), which closed in November after combining with generic drug maker Mylan to form a new publicly traded company called Viatirs. We thought Pfizer's dividend reduction might come in the first quarter since the spin-off transaction closed last month, but the adjustment will now take place in the second quarter since that is when Viatris will begin paying dividends.  In its press release on Friday, Pfizer confirmed that new dividends paid by Viatris will fully [...]

AT&T on Friday kept its dividend frozen at 52 cents per share for the first quarter of 2021, unchanged from the prior four quarters.  This marked the first time in company history that the telecom, media, and entertainment giant has held its dividend flat for more than a year. To retain its status as a dividend aristocrat, AT&T has until the fourth quarter of 2021 to increase its dividend.  That would keep AT&T’s total dividends per calendar year on the rise, which is how S&P calculates dividend growth streaks when maintaining its dividend aristocrats index. Semantics aside, a dividend freeze often signals that a business faces stress and desires to be more conservative with its cash flow. In AT&T’s case, we’ve discussed how the [...]