The market has drifted into uncharted waters with the global pandemic creating an unprecedented level of ambiguity. High yielding stocks with the balance sheet health and/or cash-flows to maintain their dividend may be a safe place to put some of your cash to work. Today, I am going to take a look at the oil industry, where maintaining dividends is the highest priority.

The S&P 500 has had a wild 2 months with a 35% market crash followed swiftly by a 25%+ recovery, catalyzed by the unprecedented level of monetary support the Federal Reserve has provided. This support has ‘artificially’ propping up the asset markets. Now the market is bracing itself for a wave of atrocious Q1 earnings reports and more pandemic headlines that will fuel the market.

May crude oil futures plummeted below $10 per barrel today for the first time since the '90s, as inventory spikes and storage becomes a central issue. The oil supply glut is maxing out the capacity of oil storage facilities, and producers are being forced to substantially reduce production.

Crude futures for June and the following months are trading at more than double May’s price as traders’ and hedgers price in the possibility of the economy opening back up resurging oil demand.  

The Oil Dividend

Oil companies are doing everything in their power to maintain their robust dividend yields, which have surged into the high single-digits and even double-digits as share prices plunge. The largest energy companies are liquid enough to maintain their dividend without turning a profit for quite some time.

Below are the financial profiles of my favorite publicly traded oil enterprises. Look for upcoming earnings among these companies for clarity about each firm’s plan to mitigate risk and capitalize on the adverse environment in which they are operating. Bankruptcies and consolidation in this industry is likely over the next 12 months and well-capitalized firms will have the opportunity to expand their operations.

British Petroleum (BP) – 11% yield

BP is currently holding $26.8 billion in cash & equivalents combined with a $10 billion line of credit, which gives the firm roughly $37 billion in liquidity. BP is the most liquid of its competitors, with its liquidity more than covering its debts through 2022.

“BP’s cash flow sensitivity to oil price is $340m for $1/bbl,” according to Jefferies Equity Research. BP is the most hedged of its competitors, with crude price changes impacting its cash-flows the least.

Next earnings report: May 5th (after close)

Chevron (CVX) – 6.1% yield 

Chevron has a $5.75 billion in cash & equivalents combined with a $9.75 billion line of credit, giving the company $15.5 billion in liquidity. CVX’s liquidity covers 80% of its debts through 2022.

“Chevron’s cash flow sensitivity to oil price is $500m for $1/bbl,” according to Jefferies Equity Research.

Next earnings report: May 1st (before the bell)

ExxonMobil (XOM) – 8.5% yield  

Exxon has $3.1 billion in cash & equivalents but issued $8.5 billion in bonds last week, bringing its cash levels up to $11.6 billion. XOM’s liquidity covers roughly 75% of its debts through 2022.

“Exxon’s cash flow sensitivity to oil price is $600m for $1/bbl,” according to Jefferies Equity Research.

Next earnings report: May 1st (before the bell)

The Opportunity

The stocks discussed above have seen massive declines since the beginning of the year, though they have seen a rebound since their lows in late March. The newfound optimism can be attributed to the Fed’s liquidity, a potential deal with OPEC+, and a perceived bottom in oil demand. This, combined with the massive dividend yields, has pushed my favorite oil stocks off their lows.

For long-term investors not needing to time the market perfectly, I wouldn’t hold back on buying one of these stocks to lock in the juicy dividend yield. I believe that all three of these stocks will recover due to their size & liquidity. These stocks have yielded robust dividends for decades (over a half century for some), and they are not going to let their investors down now. I am confident that the dividend is not at risk for these larger oil players.

I am personally waiting for another leg down before purchasing any of these oil giants. I think the optimism is a bit overplayed, and I believe the supply glut will remain for longer than these stocks have currently priced in. If these

Energy earnings in the first week of May will provide us with more color on the sector’s direction.