Meanwhile, companies outside the sector have ramped up their dividend payments substantially. Exxon has maintained its dividend this year despite oil’s low price BP Plc and Royal Dutch Shell Plc both slashed theirs in 2020.
As of the end of September, the combined market cap of the entire oil, gas, and coal sector was a half-trillion dollars smaller than that of only three technology companies:, Apple, and Microsoft.įinally, what of energy’s dividends? For years, oil majors have been the kings of payouts to shareholders. Energy isn’t simply smaller than technology. Divestment is no longer the $5 trillion challenge it once was. Six years later, the only part of my thesis that remains true is that big energy companies’ stocks are still liquid. From 2007 to 2013, the energy sector’s market capitalization was higher than technology’s. They made healthy dividend payments that, in the case of Exxon especially, rose for decades. Oil-focused companies’ market value surged during crude price runups, and they provided double-digit returns on equity. They were widely traded, making it easy for investors to enter and exit at will. Then, oil giants in particular were some of the largest listed companies in the world. My argument was that divesting from oil and gas (but not so much coal) would be challenging given four key attributes of the sector: scale, which was greater than $4.5 trillion at the time liquidity growth and yield. Six years ago, I wrote a white paper titled “Fossil Fuel Divestment: A $5 Trillion Challenge,” which attempted to explain why investors concerned about climate change might not be able to dump their energy stocks so easily. Shrinking from almost 16% to barely more than 2% of what’s arguably the most-followed stock benchmark raises a multitrillion-dollar thought experiment for investors: What value will energy companies add to a technology-driven and increasingly electrified world? In August, after dropping below utilities, then real estate, and finally materials, energy is now the smallest sector by weight in the S&P 500. Energy, one of the S&P 500’s 11 sectors, is made up entirely of oil and gas and oilfield services companies in the index, and over the past 12 years its heft has diminished. In 2008 energy was the S&P 500’s second-largest sector by weight, right behind information technology. Yet a more profound rebalancing was already under way. In a year of record-low oil prices, the fossil fuel giant’s demotion might seem like a harbinger of bad news for the energy sector. The index provider opted to adjust its component companies-booting out Exxon-to maintain the information technology sector’s weighting. The subsequent drop in the iPhone maker’s stock price narrowed its share of the price-weighted Dow. ExxonMobil Corp., a member since 1928 (when it was Standard Oil of New Jersey) and the world’s most valuable company as recently as 2011, had fallen in value over recent years, but it was finally ousted for technical reasons. One of the oldest components of the Dow Jones Industrial Average disappeared from the popular market benchmark at the end of August.