Executive Summary

Over the past few decades, the financial services industry seems to have moved away from its mission of serving clients and supporting the economy in favor of enriching itself. How can this be fixed? Regulation is a critical piece of the puzzle. But, even within the constraints of existing structures, research indicates that well-intentioned finance professionals can buck the stereotypes and succeed without extracting value from the rest of society.  Virtuous role models serve their customers’ interests faithfully, but not in ways that cause harm to other stakeholders. They treat their colleagues with dignity and promote diversity within their organizations and across the industry. And they use their skill sets and networks to contribute to the world beyond their job.

Illustration by Erre Gálvez

Finance can be a force for good in society but, over the past few decades, structural and behavioral changes have pushed the industry away from its mission of serving clients and supporting the economy in favor of enriching itself. At worst, financial services firms are mired in conflicts of interests, cloaked in opacity and complexity, and skewed by information asymmetry. Many of my students are keen to work in finance but concerned about being corrupted as soon as they walk into their first jobs. What can be done to restore confidence in the industry?

Regulation is a critical piece of the puzzle. But even within the constraints of existing structures, my research indicates that well-intentioned finance professionals can buck the stereotypes and succeed without extracting value from the rest of society. And we can all look to them as role models. In studying dozens of such individuals and firms, I found a few patterns. In simple terms, they serve their customers’ interests faithfully, but not in ways that cause harm to other stakeholders. They

The energy stocks in the

S&P 500

have lost about half their value this year. The sector is littered with dividend cuts and suspensions, as companies have moved to shore up cash positions amid the pandemic and weaker oil prices. This isn’t the ideal scenario for income investors.

And yet.

“There are selective opportunities across the energy sector to find sustainable and attractive income,” Devin McDermott, head of North American oil and gas research at Morgan Stanley, tells Barron’s.

Among the dividend-paying energy companies that McDermott favors are

Chevron

(ticker: CVX) and an assortment of midstream operations, which typically focus on infrastructure, such as pipelines to transport oil and gas. Those include

Magellan Midstream Partners

(MMP) and

Enterprise Products Partners

(EPD), both of which are master-limited partnerships—popular income vehicles, at times. Those two MLPs were recently yielding 11.8% and 11%, respectively.

McDermott also likes the dividend outlook for

Williams Cos.

(WMB), whose assets include pipelines for transporting oil and gas. It recently yielded 7.9%.

“Those [stocks] all have fairly compelling dividend yields that are sustainable, even in this new normal, and they all have strong balance sheets to give then flexibility through this cycle,” McDermott says, referring in part to weak commodity prices and margins for potentially an extended period.

But investors should use caution. Among energy companies in the S&P 500 alone, exploration-and-production firms

Apache

(APA),

Occidental Petroleum

(OXY), and

Noble Energy

(NBL) have slashed their payouts this year. Another E&P firm,

Marathon Oil

(MRO), suspended its dividend.

Global oil companies haven’t been immune to cuts, either.

BP

(BP.London) said in August that it would halve its quarterly dividend to 5.25 cents a share from 10.5 cents. And

Royal Dutch Shell

(RDS.A) in April slashed its payout by about two-thirds, to 16 cents a share.

Prices as of the