Bargain Hunting for Energy Dividends? Size Matters.

Desiccate – to dry thoroughly; dry up; dehydrate.
If one word captures the zeitgeist that pervades the U.S. oil and gas sector, it’s desiccate. I say that because so much has been desiccated: revenue growth; profits; cash flow; opportunity; and, most important to investors, dividends, distributions and investment value.
When a drought hits, the saplings and the small-fry usually succumb first. Linn Energy (NASDAQ: LINE), Breitburn Energy (NASDAQ: BBEP), Vanguard Natural Resources (NASDAQ: VNR) and Atlas Resources Partners (NYSE: ARP) once offered lush valuations supported by ample distributions. Today, only one of this quartet sports a unit price above a dollar – Vanguard Natural Resources. Only one pays a distribution – Atlas Resources Partners, and its distribution is raisin-esque at best, paid at $0.01 per unit.
Even established oil and gas companies with considerably more girth are feeling parched these days. Anadarko Petroleum (NYSE: APC) has had to shrink its dividend 81%. Kinder Morgan (NYSE: KMI) has had to slice its dividend 76%. ConocoPhillips (NYSE: COP) has had to prune its dividend 66%. (Want safe, growing dividends you can always count on? Click here.)
But these larger energy enterprises have one significant advantage over their smaller rivals – access to liquidity. The smaller you are, the more likely you are to see your lines of credit evaporate.
The Wall Street Journal reports that several major banks are declining to renew, or are clamping down on, many oil and gas companies’ ability to tap credit lines for cash. As so often is the case, those who need the liquidity most – the smaller exploration companies – find they are the first to have their riparian right to liquidity revoked.
Anadarko, Kinder Morgan and ConocoPhillips will bloom again when oil prices rise, though it may be a while before their shares produce bountiful dividends. As for Linn, Breitburn, et al., their recovery is doubtful at best. And should they recover, they’ll likely be withered, gnarled versions of their former plump selves.
The largest oil and gas companies – those with the deepest, most expansive root systems – have endured the drought best. Giant redwoods BP PLC (NYSE: BP), Royal Dutch Shell (NYSE: RDS-A), Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM) continue to maintain their respective energy dividends. Better yet, all four offer respectable (though somewhat less respectable due to their shares rallying in the past month) payouts and yields.

Of the four, BP’s dividend is most at risk. But in the past week, BP management has intimated that the dividend will be maintained. If I were to bet, I’d bet that BP maintains the dividend payout.
As you’d expect, the sturdiest of the group is also the largest. Exxon Mobil has not only maintained its dividend, it has increased it annually through the recent drought, thus maintaining a dividend-growth streak that dates back to the early 1970s.
Exxon Mobil typically announces a quarterly dividend in late April. With the April announcement, comes the annual dividend increase. We’ll find out before the end of the week if Exxon Mobil can keep the streak alive. If I were to bet, I’d bet that it will.
Size doesn’t always confer strength and resilience, but in the oil and gas sector it frequently does.
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