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Are energy company dividends a safe bet?

Energy companies have been in hot water as of late, even cutting costs to survive in a low-price commodities environment. Chevron on Tuesday cut its spending budget in an effort to maintain its dividend.

The company's CEO, John Watson, told CNBC in December that the company's "No. 1 priority is to pay the dividend," adding that it was going "to do what [it could] to cut future spending."

Still, skeptics question the whether dividends are safe as the energy sector remains volatile.

To gauge dividend sustainability, Darren Horowitz, energy analyst at Raymond James, suggested investors consider where a company's debt is trading, its capital allocation model and the current pressure on operational cash flow.


"A lot of these companies came into this cyclical downturn with too much leverage," he said Tuesday on CNBC's "Power Lunch." "Their dividend policies were based on previous return expectations that were built off of historical cost of capital that in this market just aren't that realistic."

At the same time, Goldman Sachs said Tuesday that rising oil prices cannot be maintained in an oversupplied market; news that contributed to crude settling nearly 4 percent lower on the day.

As CEOs prioritize dividends, the payout ratio of energy companies and its durability remains a concern for market watchers. Exxon Mobil CEO Rex Tillerson joined CNBC last week and said that the company's business model looks out 20 to 30 years, values investor's dividend concerns and emphasized that the company's "dividend is safe."

David Deckelbaum, oil and gas equity research director at KeyBanc Capital Markets, told "Power Lunch" on Tuesday that payout ratio concerns liquidity not cash flow, he added that Exxon is a company with "almost unlimited" liquidity.

"Supporting the dividend is important for their long-term business model; if they were to match cash flows ... [and] if we were to live in this lower environment for extremely longer ... you would have to start thinking about adjusting your payout ratio," he said. "I also think that you'd start to see cost come down a little more."

— Reuters contributed to this report.