Retire Better: ExxonMobil will suspend its 401 (k) matching—as threats to its dividend mount

Which is why news that the oil and gas giant is ending 401(k) matching for its 75,000 employees is a big deal. It’s a signal that XOM is worried about its dividend and is taking drastic measures to shore up the payout, currently 87 cents per quarter. The 401(k) news was first reported by Reuters.

The iconic industrial giant—whose roots stretch back to 1870, when John D. Rockefeller founded Standard Oil—has been on the financial defensive for some time. Earlier this year, ExxonMobil said it was slashing capital spending 30% to $23 billion. That’ll help maintain the dividend, which costs the company an estimated $15 billion a year.

Read: New blow to workers — some companies are cutting 401(k) contributions

The dividend has long been considered sacrosanct at ExxonMobil, a classic “widows and orphans” stock. And in a rarity in corporate America, the dividend has been hiked for 37 years in a row, making the company a rare “Dividend Aristocrat.” It’s a title that’s anointed to firms that raise their payouts each year for at least a quarter-century, and is considered a matter of great pride by the firm.

But the pandemic and resulting economic collapse which crushed energy prices has put the company in a vise.

“XOM’s balance sheet has been tested by the pandemic and the associated drop in crude oil prices, which have hurt operating cash flows,” writes CFRA analyst Stewart Glickman. “For 2020, we see the company as roughly cash flow neutral, and thus preservation of the dividend (so far) has entailed more borrowing.” He adds: “Assuming crude oil prices do not relapse, we think XOM can sustain the dividend without additional borrowing.”

This is pure guesswork, as the pandemic rolls on, including fears of so-called “second wave” that could further hurt energy demand and prices.

ExxonMobil’s move is the latest in a wave of corporate retrenchments that have occurred since the pandemic and accompanying economic crisis began six months ago.

Scores of companies have taken often drastic measures to shore up their balance sheets. Some companies laid off workers. Some furloughed them—a fancy word for a temporary layoff. Others cut or suspended 401(k) contributions to workers’ retirement plans. Others took it to shareholders, slashing, or in some cases, eliminating dividends. This is unquestionably painful for income-oriented investors who have come to rely on dividends to maintain a certain standard of living.

ExxonMobil, which just last week reported its second consecutive quarter of losses, amid “global oversupply and COVID-related demand impacts,” has said it remains committed to its dividend. But other oil majors have slashed theirs. Two examples: This spring, Royal Dutch Shell RDS, +1.07% cut its dividend for the first time in 80 years; BP BP, -2.92% —after saying it was also committed to its dividend—announced a 50% cut two days ago.