At what point does keeping the dividend become a conflict of interest for the board of directors? Sure the argument is our shareholders depend on the dividend for income but the board themself are major shareholders and seem to be putting their own interest before the interest of the company. Per the earnings call the investors don’t seem to understand the decision to keep the dividend at this level when the stock price continues to drop.
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@2jsa - unless you just look at the dividend as ROI, and are riding the stock market for the long haul (in which case you know that the share price is going up again). At some point in the next 3-5 years, it's going to be $50+ again and it's time to buy now. Additionally, doesn't a lower stock price mean the BoD get even more shares as part of their RSU and even more dividend payments.
"While I am sure that there are thousands of stock holders who just look at the dividend amount and are pleased with the relatively high return"
Flawed logic.
No one that has accumulated XOM stock over the years gives a hoot about the so called high dividend yield. It is only high because the stock price has dropped so low and the dividend has not yet been cut. If you bought in at these low levels, yes it is a good albeit risky return, but the vast vast majority of investors have a cost basis at least twice the current price.
By your logic, EM shareholders would be ecstatic if the share price were $10 and the resulting dividend yield at 35%. Just doesn't work that way.
Senior executives and BOD members would benefit dramatically more from an increase in stock price than continuing the current dividend. Like the previous post, cutting the dividend now is like slicing your throat twice. Bad move.
The dilemma of whether or not to cut the dividend is actually a damed if you do, damed if you don't.
Depends on why a company is cutting the dividend. If XOM was a growing company with a healthy balance sheet and tons of new opportunities, shareholders might accept a dividend cut in favor of not taking on more debt, with the promise of the company using the extra cash flow to increase stock value by pursuing these new opportunities. It can be a benefit, but only if the gains in stock price are fairly immediate and more than offset the dividend cut.
But, for the situation EM is in, a dividend cut would be viewed as a last ditch effort to reduce cash outflow and increase retained earnings. Investors want to see all other cost saving avenues pursued first, including staff reductions, lower capex, sale of non-strategic assets, etc.
Although some probability of EM cutting the dividend is likely already reflected in the low 30's stock price, an actual dividend cut would signal that the company is out of options to improve cash flow, and that apparent desperation would drive the stock price even lower. If you own XOM stock, this would be worse than just losing part of the dividend, it would be a double hit on stock price and dividend income.
Although a dividend cut is a much requested move on this forum, be careful what you ask for.
Further devaluation of the company and lower stock prices would only increase the need for more draconian steps, likely significantly further downsizing, selling quality assets needed for the future, etc. It would likely make things even worse, at least in the near term. It is likely selling at the bottom - brings in cash near term, but a bad investment strategy.
@OP - this is a concern that I raised in a couple of earlier threads.
@rtm - because CL30+ and higher ranked CL28-29 get RSU's as part of their compensation package. Once you get to VP level, the RSU's can represent 50% of your compensation. For Presidents and especially CEO, it's an even higher percentage.
@jly - you're not taking into account that the employee directors hold millions of shares each. That far outweighs the hundreds (or even thousands) of shares held by each of the individual stock holders. While I am sure that there are thousands of stock holders who just look at the dividend amount and are pleased with the relatively high return, the concern is that the directors may be bankrupting the company to line their own pockets (through borrowing money to pay for an inflated dividend). It is definitely a conflict of interest.
BOD is a part time job. Many of them are on multiple boards in addition to having other full time jobs. They will go along with the CEO / company representative 99% of the time. I imagine they were shown a convincing power point documenting the ability of XOM to continue to pay a dividend. If things dont turnaround the dividend will be cut as management has already stated no more borrowing.
No conflict, all savvy investors know dividend payments are magic money that just appear out of thin air so why cut the money tree?
Continue the corporate welfare while the company's value erodes and it's driven into the ground. Hopefully I'll die before all my money gets returned to me and the value of the company goes to 0.
As shareholders and BoD, there is likely a conflict of interest based on intent and action if no assets write off to avoid further losses. I struggled to understand how it can continue to pay dividends with repeated losses?
SEC filing will show how many shares of XOM the board of directors own.
I would say there is more shareholders that agree versus board members, else the shareholders would vote out the board. Seeing as that isn't happening, no conflict of interest.
Isn't that public information? You can easily look it up.
If I was BoD, I'd have sold all XOM in early FEB 2020.
Knowing what I knew then.
At what point is Dividend a conflict of interest?
Immediately.
How do you know the BoD own EM stock?