(Bloomberg) -- The check is not in the mail.
Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors.
The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same.
It's another painful measure -- along with tens of thousands of layoffs and more than $100 billion in canceled investments -- of the toll taken on the industry by the worst oil and gas price slump in decades. The quarterly payments, prized by conservative shareholders as a source of steady income, are unlikely to be restored any time soon.
"It really reinforces the necessity of having a margin of safety if you are buying a stock primarily for its dividend," said Josh Peters, editor of Morningstar's DividendInvestor newsletter. "What we have found for some of the energy companies is that the margin of safety was either slim or nonexistent."
Kinder Morgan's 75% dividend cut was the biggest, amounting to a $3.44 billion loss for shareholders over the course of 2016. The announcement from North America's largest pipeline operator "came as a shock to some people and obviously was deplored by some people," founder and Executive Chairman Richard Kinder told analysts at a Jan. 27 meeting.
The move was necessary to help the Houston-based company keep its investment-grade credit rating while ensuring it has enough money to pay debts and grow, Kinder said. Since the Dec. 8 announcement, shares have risen about 20%, compared with a 5.3% gain for the Alerian MLP stock index, which tracks energy infrastructure companies.
"This is a direct result of investors' appreciation of the significant efforts we've made to live within cash flow and strengthen our balance sheet," spokesman Dave Conover said in an e-mail.
Dividend-slashers including ConocoPhillips ($2.42 billion in annualized cuts) and Anadarko Petroleum ($447 million) made similar arguments. They followed the lead of Marathon Oil, Eni SpA, Chesapeake Energy and Transocean, who cut payouts in 2015 as the industry girded for what's expected to be a multiyear slump.
Along with a dividend cut, ConocoPhillips also canceled plans to boost production and said it expects to write down the value of some fields by $800 million. "We believe it's prudent to plan for lower prices for a longer period," Chief Executive Officer Ryan Lance said in a Feb. 4 statement.
EUROPEAN PAYOUTS
In Europe, the downturn forced Repsol, Spain's biggest oil company, to reduce payouts for the first time in seven years after reporting a net loss in the fourth quarter. Norway's Statoil ASA kept its payout but proposed a scrip dividend last month, allowing shareholders to take their payment in shares instead of cash.
In Canada, Husky Energy, Crescent Point Energy and Cenovus Energy also cut dividends. Husky eliminated its longstanding cash dividend last year, canceling what would have been $1.2 billion in payments for 2016.
"The board will continue to review the dividend on a quarterly basis with the objective of restoring a sustainable dividend," Kim Guttormson, a spokeswoman for Husky, said in an e-mail.
Also paring dividends this year: U.S. drillers Cimarex Energy, Devon Energy, Noble Energy and Range Resources and U.K. oil-services provider Amec Foster Wheeler.
Bloomberg News calculated the cost to shareholders based on the number of periods companies will pay at the lower dividend rate in 2016, assuming no further changes. Repsol has only declared one payment so far this year.
TOUGH DECESION
For smaller or newer drillers like a Cimarex or Range Resources, which each halved their dividend, the decision was probably easier, said Brian Youngberg, an Edward Jones analyst in St. Louis. With better growth prospects for their shares, the quarterly payout was never a big selling point for the stocks, he said.
For more well-established companies, like ConocoPhillips, it's a more painful choice, he said.
"The Exxons and Chevrons, they're so big, it's hard for them to call themselves a growth story," Youngberg said by telephone. "They are income stocks, and these guys know why their investors own the shares."
Chevron told analysts on March 8 that it would slash spending on new projects by 26% in the next two years and consider more borrowing to defend its $1.07 a share payout.
"We have a shareholder base that values current income," Chairman and CEO John Watson told reporters after the company's annual strategy presentation in New York. "That's been our traditional shareholder base. They value continuity."
Oil is down more than 60% from a June 2014 peak and traded at $39.55 a barrel at 10:26 a.m. Thursday on the New York Mercantile Exchange. Natural gas is down 34% in the past year to $1.88 per million British thermal units.
Even if prices rebound, companies will be wary about restoring dividends, said Morningstar's Peters. Their priorities will probably continue to be paying down debt and building up cash reserves to avoid another financial crisis, he said by telephone.
"It could be a lot of years before you see any meaningful rebound in the dividend," he said. "It's tough to have a really conservative, stable investment in a business that can't control the price of its own product."
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