Exxon Mobil Seen Sharply Boosting Dividend This Month

Exxon Mobil Corp. (XOM) is expected to next week unveil a higher-than-average dividend increase, pleasing investors who have long urged the company to bring its cash distribution closer to its oil-industry competitors.

Some analysts forecast Exxon will lift its quarterly dividend, currently at 47 cents per share, by between 10% and 33%. That is a significant jump from the average 6.5% increase over the last decade.

"Exxon Mobil is expected to react to increasing pressure from shareholders in recent years to offer a more generous dividend," says Alan Good, an analyst at Morningstar.

A sharp spike is expected after Chief Executive Rex Tillerson told analysts at the company's annual meeting in March that Exxon was aware its dividend yield was low compared to its rivals. He added the oil giant was evaluating a possible increase by the end of the second quarter, when the company expects to finish repurchasing the shares issued to acquired natural-gas producer XTO Energy in 2010.

Exxon, the world's largest publicly owned oil company, also typically announces its annual dividend increase the last week of April.

Exxon is reviewing whether higher oil prices anticipated in the future will be sufficient to allow for a bigger dividend, Tillerson added.

Chevron Corp. (CVX), Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN, RDSB.LN) and BP PLC (BP) all offered a higher dividend yield than Exxon, causing some investors to question Exxon about its preference to spend more in share buybacks than dividends.

A sharp dividend increase would be a departure for Exxon, which for three decades has preferred to offer conservative, but constant dividends, despite the ups and downs of the energy markets.

By contrast, Shell froze its dividend for two years in 2010 due to the weak economic outlook. Also BP suspended its dividend to pay for the Deepwater Horizon oil spill in the Gulf of Mexico in 2010

Still Exxon's dividend yield, currently at 2.2%, is below Chevron's 3.1%, while Shell and BP's are over 4.5%

Analysts don't expect Texas's Exxon Mobil to lift its dividend to a level that will close the gap with rivals, but they do forecast a substantial increment that will soothe investors' woes.

Exxon is likely to take "an outright positive action in response to shareholder wishes," Deutsche Bank analyst Paul Sankey said in a note to clients. "Dividend is likely to be stepped up to yield closer to Chevron and within more reasonable distance of Shell and BP." Sankey expects a 33% dividend increase that will take Exxon's annual dividend yield close to 3%.

UBS analyst William Featherston forecasts a spike of about 15%, while Argus Research analyst Phil Weiss expects a 10% increment.

Exxon Mobil declined comment.

Exxon shares rose 1.7% to close at $85.45 Tuesday, and were down 11 cents after hours.

A sharp dividend increase is not an easy step for Exxon Mobil because it is a permanent commitment, that unlike share buybacks, can't be cut off without a major backlash from investors, said Fadel Gheit, an analyst with Oppenheimer & Co.

The company has to carefully analyze its future cash flow and make sure it has enough money to first finance its huge capital annual expenditure of over $37 billion annually for the foreseeable future even if oil prices collapsed, Gheit said.

"Oil is over $100 a barrel today, but nobody can guarantee it will stay there," says Gheit, who said Exxon is likely to increase its dividend by 10%.

UBS estimates Exxon Mobil needs WTI crude price of $66 per barrels in order to generate enough cash flow to equal to the company's capital expenditure budget plus a 15% increase in dividend.

Light, sweet crude for May delivery on the New York Mercantile Exchange settled up $1.27 a barrel, at $104.20 a barrel, the highest price since April 2.

-By Isabel Ordonez, Dow Jones Newswires; 713-547-9207; [e-mail]