I’m part way through the annual rebalancing of my Dividend Portfolio (with other portfolios to follow.) The initial stage of that process requires a close look at which of the stocks in the portfolio I’d like to keep for another year (based on their prospects for the next year) and which I’d sell because I don’t want to own them for the year ahead.
So far, I’ve sold AT&T (T) out of the portfolio on a negative read on the company’s growth prospects and its huge debt load.
But the effort is taking a little longer than usual this year because I find myself having to work out a strategy for dividend investing in the age of global warming.
Today, I’m selling Exxon Mobile (XOM) out of the portfolio because 1) I don’t see the upside for international oil majors in the year ahead with global demand for oil slipping, and 2) Exxon Mobile is a big target, and deservedly so in my opinion, for those pushing to control global warming before the planet runs out of time.The most recent price forecast by the U.S. Energy Information Administration calls for international benchmark Brent crude to average $63 a barrel in 2019 and $62 a barrel in 2020. Brent sold at $68.40 a barrel today. U.S. benchmark West Texas Intermediate is forecast to average $54 a barrel in the first half of 2019 and then, with the gap between West Texas Intermediate and Brent closing, to average $59 a barrel in the second half of the year. Today Brent crude closed at $68.40 a barrel and West Texas Intermediate at $59.83 a barrel. You’ll note that there’s no upside for oil in the EIA forecast (which is, of course, just a forecast.) A slowing global and U.S. economy plus efforts to reduce the use of carbon fuels to attack the crisis of global warming will keep the lid on oil demand.
Second, leaked documents that show Exxon Mobil funding a campaign of climate change denial have made the company a target for regulators and climate activists. On Thursday, the European Parliament will conduct a hearing on Exxon Mobil’s campaign to discredit climate science that could wind up banning the company from lobbying that parliament (The European Union accounts for 14% of Exxon Mobil’s global oil and gas production.)Exxon Mobil also faces significant legal challenges in the United States over its history of climate change denial. In January, the Supreme Court ruled against company’s bid to block Massachusetts Attorney General Maura Healey from forcing Exxon Mobil to turn over decades of records on what it knew about climate change as part of a fraud probe. In February, a state judge ruled to allow New York Attorney General Letitia James to file a motion to dismiss Exxon Mobil’s motion alleging prosecutorial misconduct in the Empire State’s own lawsuit against the oil giant for allegedly misleading investors about the risks of climate change. Washington, D.C., Attorney General Karl Racine is soliciting outside legal counsel to help an investigation and potential lawsuit against Exxon for possible fraud.The company has said “We unequivocally reject allegations that ExxonMobil suppressed climate change research contained in media reports that are inaccurate distortions of ExxonMobil’s nearly 40-year history of climate research.” That statement came after InsideClimate New and the Los Angeles Times published documents showing the company understood the threat of climate change as far back as 1981 even as the company funded climate denial think tanks. Exxon Mobil has now said that it supports efforts to fight climate change. In 2017, the company publicly urged President Donald Trump not to withdraw the U.S. from the Paris climate accords. Last year, the firm pledged $1 million to support efforts to pass a national tax on carbon dioxide emissions. That “change of heart” won’t do anything to resolve Exxon Mobil’s legal problems.
And then there is, of course, the contradiction between what the company now says about the reality of the problem of climate change and the fact that Exxon Mobil is an oil company. Its reason to exist is to find, develop and pump oil–and as such the company’s mission is antithetical to reducing global carbon emissions. For example, Exxon Mobil has announced that it doubled oil and natural gas production in the Permian Basin of Texas lat year and it would increase production from that area to 1 million barrels a day over the next fe years. Environmental groups calculate that U.S. oil and natural gas production is set to add the equivalent of 1,000 coal plants production of carbon and other global warming pollutants to the atmosphere by 2050.
Obviously, Exxon Mobil isn’t the only oil and natural gas company in the world and it is not the only oil company contributing to global warming.
It’s not even the only oil and natural gas producer and/or transportation stock in my portfolio.
What to do about the other energy companies in the Dividend Portfolio is an important and difficult question. Investors looking for higher yields–as this portfolio does–are likely to be overweighted in energy stocks.
I think selling Exxon Mobil is an important first step but it’s only a first step. I’ll devote a post in the near future to what I see as the logic of reducing exposure to this sector (along with some suggestions for a strategy for doing this and a time table) at a time when reducing global carbon emissions is ever more pressing.