A Study On The Dividend Policy Of Major International Oil Companies After The Oil Price Falling Down

As an important financial decision,the dividend policy of a company not only determines the amounts and methods of cash payment to shareholders,but also may affect the value of the company.In the second half of 2014,the oil price dropped sharply,and the oil company’s profits and operating cash flow were severely reduced.The public opinion generally believed that the era of low oil prices had already arrived.Under this situation,what will happen to the dividend policies of major international oil companies? This paper uses ExxonMobil as a case to try to explore this issue.This paper firstly analyzes ExxonMobil’s dividend policy for the period of 2002-2014,and then the changes and characteristics of the company’s dividend policy in the low oil price period of 2015-2016.The study finds that in 2014 and before,the company’s dividend policy is characterized by steady growth in cash dividends per share,and cash dividends are of stickiness;stock repurchase is large,and total repurchases exceeds cash dividends;while the cash dividend payout ratios are low and volatile,the average total payout ratio of cash dividends plus stock repurchase is around 80% and relatively stable,indicating that the company has a target total payout ratio.During the period of low oil prices after 2014,the company’s dividend policy shows the following characteristics: Cash dividend per share continues to grow steadily,but the amounts of stock repurchases decreases sharply,and the cash dividend payout ratio and total payout ratio rise sharply.In 2016,the cash dividend payout ratio and total payout ratio are higher than 100%.It shows that the company attaches great importance to maintain a steady increase in cash dividends per share,and therefore does not hesitate to pay more than the net income and gets far away from its target total payout ratio.The company takes the cash dividends per share as a signal to the market,and makes full use of the flexibility of stock repurchases.Furthermore,this paper analyzes the market reaction to the dividends announcement of 2016 using the method of event study.The results show that the market reaction is positive.Then,the investment policy and financing policy are put together to know the sources of cash.It is found that,the company cuts capital expenditures significantly because of the ROE lower than the cost of capital.The other hand,the low debt ratio makes the company easily access to debt financing.Finally,the company’s dividend policy in the period of low oil prices is explained by the signaling theory and agency theory for dividend policy.Overall,the ExxonMobil’s dividend policy in the period of low oil prices is help to enhance the value of the company.The company’s practice of the dividend policy could be learned by other peer firms.At the end,this paper concludes the implications of this case.