HOUSTON - Exxon Mobil Corp. and Chevron Corp., the two largest U.S. oil companies by market value, sharply boosted their quarterly dividends Wednesday, underscoring their confidence in the staying power of high oil prices.
Exxon Mobil raised its quarterly dividend by 21% to 57 cents a share, while Chevron lifted its quarterly dividend by 11% to 90 cents a share. Both increases were above analysts' expectations and in Exxon's case, it was significantly higher than the average 6.5% hike offered in the last decade. The increases--which will cost Exxon about $1.9 billion more a year and Chevron an additional $715,000--came as both companies have been amassing large cash reserves amid continued high oil prices.
Exxon's sharp dividend hike is expected to bring its dividend yield, currently at 2.64%, closer to rival Chevron's 3.4% and narrow the gap with European competitors Royal Dutch Shell PLC and BP PLC, which both offer yields above 4%. The move is a departure for Exxon, which for three decades has preferred to offer conservative but constant dividends, impervious to the ups and downs of energy markets.
Exxon's decision, however, was expected after Chief Executive Rex Tillerson told analysts at the company's annual meeting in March that Exxon was aware that its dividend yield was low compared to rivals. He added that the oil giant was evaluating a possible increase by the end of the second quarter, when the company expects to finish repurchasing shares issued to acquire natural gas producer XTO Energy in 2010.
Tillerson also said the company was analyzing the impact oil prices are likely to have in the future on the cash flow required to fund its massive capital expenditures of about $37 billion a year, as well dividends and share buybacks.
Exxon's dividend increase "is a lot more than I had expected and underscores management confidence in the company's strong financial outlook," said Fadel Gheit, an analyst with Oppenheimer & Co.
In the case of Chevron, the higher dividend came only five months after its last increase. Chevron Chief Executive John Watson said in prepared remarks that the hike reflected Chevron's confidence in the company's compelling "growth prospects."
UBS had estimated Exxon Mobil and Chevron would need a West Texas Intermediate crude price of $66 a barrel and $81 a barrel, respectively, to generate enough cash flow to meet their capital expenditure budgets alongside higher dividend payouts. Light, sweet crude for June delivery settled Wednesday at $104.12 a barrel on the New York Mercantile Exchange.
Exxon is slated to report its first-quarter earnings on Thursday, and Chevron's are due Friday.
Exxon shares closed up 0.6% at $86.85, while Chevron ended 0.8% higher at $103.85.
Copyright (c) 2012 Dow Jones & Company, Inc.
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