Exxon's 7% dividend yield, among the largest in the S&P 500, is safe, according to several analysts

Published Thu, Feb 4 20217:31 AM EST

Even after an extremely challenging year for Exxon Mobil and big oil companies, several Wall Street analysts don't see the company cutting its rather hefty dividend. Exxon is an attractive name for income-seeking investors given its relatively high dividend, and as oil prices plummeted to never-before-seen lows in 2020, some worried that the energy company's dividend was in danger. "In our view the dividend issue of 2020 has been addressed with XOM emerging from the worst downturn in a generation as the only major with growth capacity intact," Bank of America analyst Doug Leggate wrote in a note to clients following Exxon's fourth quarter earnings report on Tuesday. The company currently yields 7.3%, the sixth-largest in the S & P 500, making it a potential yield trap on the surface. But analysts don't think so. "We see the dividend as likely to be safe, especially so if the futures strip stays at current levels," added Raymond James analyst Justin Jenkins. Throughout 2020's downturn, caused by a drop-off in demand as the coronavirus pandemic forced global economies to shut, Exxon has reiterated that its dividend remains a priority. Peers including Shell , Equinor and Occidental Petroleum all cut their dividends in an effort to shore up balance sheets. Exxon didn't raise its dividend last year — breaking with tradition — but the company once again reiterated that it will be able to cover shareholder payouts when reporting fourth quarter earnings results on Tuesday. The company, which reported a $20 billion loss for the quarter, outlined how it will cover costs including its dividend at various oil prices. CEO Darren Woods said that with Brent crude futures at $45 per barrel, the company could pay its dividend and invest in the low-end of its flexible capital spending problem. Brent at $50 per barrel would allow the company to invest $16 billion in its capital program spending, which is at the low end of the company's 2021 guidance. Brent traded around $58 per barrel on Wednesday, its highest level in more than a year. Last April, during the depths of the drop-off in oil prices, Brent fetched less than $20 per barrel. "The past year presented the most challenging market conditions ExxonMobil has ever experienced," Wood said in a statement announcing the company's earnings results. "We remain focused on increasing long-term value for our shareholders by investing in our highest-return assets, preserving the strength of the balance sheet, and paying a reliable dividend," he added. Amid the downturn, Exxon implemented aggressive cost-cutting measures, including slashing thousands of jobs. "XOM seems to be starting to reform its thinking a bit, with dividend and balance sheet as the key financial priorities, with cash flow growth objective more contained," JPMorgan said in a note to clients following the company's fourth quarter print. "Dividend safe," summed up Evercore ISI following the company's earnings. "At current crude prices, downstream and chemical margins, CFO [cash flow operations] is expected to be able to cover the dividend at planned capital investment levels," analyst Doug Terreson said. Shares of Exxon advanced more than 3% on Wednesday, bringing their year-to-date gain to nearly 15%. Over the last year shares are down 22%. - CNBC's Michael Bloom contributed reporting.

A view of the Exxon Mobil refinery in Baytown, Texas.

Jessica Rinaldi | Reuters

Even after an extremely challenging year for Exxon Mobil and big oil companies, several Wall Street analysts don't see the company cutting its rather hefty dividend.

Exxon is an attractive name for income-seeking investors given its relatively high dividend, and as oil prices plummeted to never-before-seen lows in 2020, some worried that the energy company's dividend was in danger.