Trader Talk with Bob Pisani

Looking for yield? Big oil is trying to convince you they are the place to be

A BP employee uses ultrasound to scan a section of pipe along an oil transit pipeline at Prudhoe Bay oil field on Alaska's North Slope.
Al Grillo | AP

Looking for yield? The oil majors are rushing to assure investors their high yields are safe.

Several oil major reported today, including Conoco Phillips and Royal Dutch Shell. Both affirmed that production would begin dropping, but one thing the oil majors are NOT cutting is the dividend.

This morning, Royal Dutch Shell said it was committed to its dividend of $1.88 a share in 2015 and at least that level in 2016.

Conoco raised their dividend by a few cents just a short while ago.

How important is the dividend? Conoco's CEO, Ryan Lance, opened the conference call this morning with this statement: "The dividend is safe, let me repeat that the dividend is safe."

They went out of their way to note they had raised the dividend: "While every dollar matters, we believe this was an important message for shareholders."

Get the point? Think the dividend is safe?

You can't blame them. It's part of a desperate effort to remain relevant to investors. We all know the growth outlook...particularly the cash flow outlook...has been cut dramatically in energy stocks.

Given that fact, the best way to prevent a mass exodus from the space and boost confidence is to appeal to the legions of yield-hungry investors.

Big oil as a utility play? Believe it.

Look at the dividend yields of the majors:

Dividend yields

BP 6.4%

Shell 5.8%

Conoco 5.6%

Chevron 4.6%

ExxonMobil 3.5%

These are juicy yields, particularly with the S&P 500 yielding 2.0%.

True, yields are high in part because of the price drops of the majors. Exxon, for example, is down 20% in the last 12 months.

The big kahuna in this space, ExxonMobil, will be reporting on Friday, and they will almost certainly commit to the current dividend, and may even increase it.

Look at the recent history of dividend per share payments for the company:

ExxonMobil (dividend per share, diluted)

2010 $1.74

2011 $1.85

2012 $2.18

2013 $2.46

2014 $2.70

2015 (est.) $2.87

Source: Factset

Do the math: that is a 55% increase in the dividend in five years. Part of this is due to a reduction in the share count, which has been reduced by about 12 percent in the same time period, but that is less than 20% of the gain.

Can big oil keep the dividend protected--and perhaps growing--into 2016? Yes. For the moment, it's relatively easy to fund the dividend from the cash balance. The majors also have solid access to the capital markets that they can tap as well, and they will no doubt use that facility. Also, layoffs and increasing technological efficiencies are helping offset the severe decline in cash flows that many companies have seen.

But in the long run--I am talking a couple years from now--they will all need oil to be higher. Big Oil cannot forever sell itself as a Utility play. And that's the main objection that traditional energy investors have to the "Big Oil as a Utility" play: those who get the cycle wrong will lose money regardless of the dividend.