Expectations were low heading into Big Oil behemoth Chevron’s (NYSE: CVX) quarterly earnings report, released May 1.

The massive drop in oil prices made it nearly impossible for the company’s profits to even come close to the same quarter last year.

[ad#Google Adsense 336×280-IA]The extremely tough comparables were well known by investors, which is why the stock did not drop after the Chevron earnings report was released.

But more broadly, Chevron underperformed its bigger brother Exxon Mobil (NYSE: XOM) on several metrics.

And Chevron held its quarterly dividend steady, while Exxon Mobil increased its dividend.

While Chevron is a strong company, it’s still no match for its main competitor.

Chevron earned $2.5 billion last quarter, down 43% from the same quarter last year. Revenue declined 37% year-over-year. Of course, it goes without saying that the approximately 50% decline in oil prices over the past 12 months did most of the damage.

Because of that, Chevron’s upstream exploration and production profits collapsed by 63% year-over-year. Fortunately, the downstream business helped offset some of this, as profits there nearly doubled.

Integrated oil majors like Chevron typically see refining profits actually increase when oil prices decline quickly. This seems counterintuitive, but downstream operations tend to improve during oil declines because refining feedstock costs fall.

The problem is that upstream operations still constitute the majority of Chevron’s business, meaning even a strong downstream performance can only accomplish so much.

But Chevron still turned a profit, which is far from a guarantee these days. Many companies in the energy sector are posting big losses, and some, including oil drillers and a few smaller independent exploration-and-production companies, are cutting dividends to stay afloat.

Clearly, the big question for Big Oil is when oil prices will rally once again. Unfortunately, this is an impossible question to answer with any certainty. For what it’s worth, the price of oil has increased roughly 31% from the 2015 lows.

In the meantime, Chevron will cut costs wherever possible to save cash. The company does not plan to buy back stock this year, which should save around $5 billion. In addition, Chevron sold off $3.6 billion worth of downstream assets last quarter, and cut capital spending by 8.5% year-over-year.

Separately, Chevron declared a $1.07 quarterly dividend. What’s noteworthy about this announcement is that it represents a flat dividend rate from the previous quarter. It had been a full year since Chevron last increased its dividend, meaning it was due for another increase. But Chevron did not increase its payout on schedule, which was a surprise.

Chevron is an S&P 500 Dividend Aristocrat, meaning it has increased its dividend for at least 25 years in a row. By not raising its payout, Chevron is in danger of falling off the list if it does not bump up the distribution soon. Moreover, Exxon Mobil – another member of the exclusive Dividend Aristocrats club – increased its dividend by 6%.

Chevron’s relative fundamental underperformance in comparison to Exxon Mobil, in addition to their divergent dividend announcements, is a clear sign that Exxon Mobil remains the strongest company in the oil space. Exxon Mobil has a triple-A credit rating, a stronger balance sheet and the financial flexibility to keep increasing its dividend, even during such a horrible operating climate.

Times are tough for Big Oil. For the stronger energy stock, look no further than Exxon Mobil.

— Bob Ciura

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Source: Wyatt Investment Research