The health of Exxon Mobil’s dividend has been debated for some time. But that debate reached a new level this week.
In a proxy filing, activist investor Engine No. 1 asserted that Exxon’s “cash flow and dividend….are increasingly at threat” without “a more concerted response and well-developed strategy for confronting the risks and challenges related to the global energy transition.”
Among other things, Engine No. 1 is pushing the company to focus more on alternative energy sources, something Exxon says it’s already doing. Engine No. 1 is also seeking four board seats.
The company’s annual meeting is scheduled for this morning at 9:30 a.m. Central time. But the company’s board considers the dividend every quarter but not at the annual meeting, according to an Exxon Mobil spokeswoman.
In an email to Barron’s on Wednesday morning, she wrote: “The company has developed a portfolio of investment opportunities in high-return, low cost-of-supply projects. We’ve made substantial progress in our continued efforts to reduce costs—all of which will enhance performance and deliver significant shareholder value.”
The stock was at $58 and change Wednesday morning, basically flat in early trading.
Exxon didn’t raise its dividend, currently 87 cents a share on a quarterly basis, last year as it struggled with the pandemic, lower energy prices and not having enough free cash flow to cover the payout. It relied instead on debt and asset sales.
However, the company spokeswoman pointed out that its first-quarter free cash flow of $9.3 billion “fully funded our dividend” and paid for more than $4 billion of debt reduction.
In a letter to shareholders dated May 23, the company’s board pointed out that it’s taken various steps to evolve, “including exceeding emission reduction goals set in 2018 and setting new reduction plans for 2025.”
It’s also added six new directors since 2017, four in the past 18 months, according to the letter.
Whatever the case, income watchers will be watching the company’s dividend policy even more closely.
The company is a member of the S&P 500 Dividend Aristocrats, which have paid out a higher dividend for at least 25 straight years. If Exxon does not raise its dividend this calendar year, it faces removal from the group.
Write to Lawrence C. Strauss at [email protected]