By now, investors are well-aware of the carnage sweeping through the energy sector. In the United States, West Texas Intermediate crude oil is down to about $40 per barrel. At its peak level last year, oil was trading above $100 per barrel. Due to falling commodity prices, oil and gas companies are suffering huge declines in revenue and earnings.
Not surprisingly, this has affected exchange-traded funds, or ETFs, that focus on the energy sector. The big questions for investors going forward is if, and when, commodity prices will recover, and whether the major energy stocks such as Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP) can maintain their high dividend yields through the crisis.
ETFs With the Biggest Exposure to the Major Oil Stocks
ETFdb.com’s ETF Stock Exposure Tool helps investors evaluate exchange-traded funds to determine which ones are most highly exposed to the energy sector and stocks.
ETFs With XOM Exposure:
| Ticker | Name | XOM Weighting |
|---|---|---|
| (IYE ) | iShares US Energy ETF | 23.93% |
| (FENY ) | MSCI Energy Index ETF | 23.46% |
| (VDE ) | Energy ETF | 23.42% |
ETFs With CVX Exposure:
| Ticker | Name | CVX Weighting |
|---|---|---|
| (XLE ) | Energy Select Sector SPDR | 12.98% |
| (IYE ) | iShares US Energy ETF | 11.86% |
| (FENY ) | MSCI Energy Index ETF | 11.59% |
ETFs With COP Exposure:
| Ticket | Name | COP Weighting |
|---|---|---|
| (IEO ) | iShares U.S. Oil & Gas Exploration & Production ETF | 11.59% |
| (RDIV ) | Ultra Dividend Fund | 5.36% |
| (IYE ) | iShares US Energy ETF | 4.56% |
Clearly, energy ETFs have the highest exposure to Exxon Mobil. This company is the largest publicly-traded energy company in the world, with a $335 billion market capitalization. The good news is that Exxon Mobil arguably is the best-positioned oil major because it has the strongest balance sheet. In fact, Exxon Mobil is one of only three U.S. companies to hold the “AAA” credit rating from Standard & Poor’s. It is faring better than many of its competitors. Exxon Mobil’s earnings fell 47% last quarter, while Chevron’s profits fell 60%. ConocoPhillips lost $978 million in the first three-quarters of the year.
Dividends Remain Intact So Far
As these stock prices collapse, dividend yields rise. The fallout in the energy stocks over the past year has caused a significant elevation in dividend yields across the sector. The result is that many stocks sport dividend yields at, or near, a 10-year high.
- Exxon Mobil increased its dividends from $0.69 to $0.73 a share in May this year. That’s a dividends yield of about 3.5%.
- Chevron recently yielded above 5%.
- ConocoPhillips increased its dividends from $0.73 to $0.74 a share in July this year. That’s a dividends yield of about 5.5%.
Investors are understandably concerned that their high dividend yields are not sustainable. In response, many oil companies have directly addressed their dividends. Management teams are taking aggressive steps to protect their dividend payouts, including asset sales and significant cost cuts. ConocoPhillips received $600 million in disposition proceeds year-to-date. Chevron has realized $5.4 billion of asset sales year-to-date, and cut capital expenditures by 14% year-to-date. Exxon Mobil cut capital expenditures by 16% over the first nine months of the year.
The Bottom Line
The major energy stocks have been hit hard by the crash in commodity prices, and it is unclear when, and if, energy prices will recover. Energy stocks offer high dividend yields, but these dividends may not last if the companies continue to suffer such huge declines in revenue and earnings. There are many ETFs that hold high weightings of Exxon Mobil, Chevron and ConocoPhillips, which are vulnerable to further sell-offs in energy stocks.
As a result, while it may be tempting to try to pick the bottom in energy stocks, investors should remain cautious.
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