How The Dividend Yields Of Big Oil Plays Are Changing With Rising Oil Prices

Tensions between Russia and Ukraine have sent crude oil prices to levels unseen since 2014. President Joe Biden signed an executive order this week banning the imports of Russian oil, coal and liquified natural gas.

According to data from the Energy Information Agency, the U.S. imported a daily 672,000 barrels of crude and refined oil from Russia in 2021, Reuters reported. 

About 8% of U.S. imports of oil and refined products, or about 672,000 barrels a day, came from Russia last year, said Andy Lipow, president of Lipow Oil Associates LLC in Houston, citing figures from the Energy Information Administration.

To this end, investors have been purchasing shares of mega-cap oil companies that pay large dividends like Exxon Mobil XOM, Chevron Corp CVX and ConocoPhillips COP.

Something to note about dividend yields: a stock's price and its dividend yield are inversely related. The yield may decrease if the dividend stays the same as the price of the stock increases.

For example, if company X has a dividend of 10 cents per year and the stock price is $10, the dividend yield is 1%. If the stock's price increases to $20 and the dividend remains the same, the yield is now cut in half to 0.5%.

The yield will not increase until company X declares a higher dividend payment, making the dividend to yield ratio even. As the price of oil increases, without a declaration of a higher dividend payment, investors of companies like Exxon, and Chevron are effectively losing money to the lack of declaration.

When doing due diligence on a stock, an investor can also use yields as a tool when it comes to valuation. If the yield is far off historical levels, or different in comparison to similar companies, it communicates to the investor whether the stock is trading at a high (or low) valuation.