Exxon Mobil Corporation engages in the exploration, production, transportation, and sale of crude oil and natural gas. The company is a component of the S&P 500, Dow Jones Industrials and the Dividend Aristocrats indexes. Exxon Mobil has been consistently increasing its dividends for 27 consecutive years. From the end of 1998 up until December 2008 this dividend growth stock has delivered an annual average total return of 10.50% to its shareholders.
At the same time company has managed to deliver an impressive 25.40% average annual increase in its EPS since 1999. The forecasts for the foreseeable future are for a 40% -50% contraction in the EPS in 2009 followed by an increase in EPS to a $6 to $6.50 range in 2010. The sheer scale of the company gives it economies of scale. Its productivity is further boosted by the efficiency of developing new projects in Quatar, Norway and US. Exxon Mobil does business on over 200 countries and derives only 30% of its revenues from the US.
The ROE has consistently increased from less than 13% in 1999 to over 38% in 2008.
Annual dividends have increased by an average of 7% annually since 1999, which is much lower than the growth in EPS. Currently, the number of shares is lower than the number of shares at the time of the merger between Exxon and Mobil. The tremendous increase in commodities prices over the past decade has greatly contributed to the strength in earnings per share. A 7 % growth in dividends translates into the dividend payment doubling almost every ten years. If we look at historical data, going as far back as 1963, XOM has actually managed to double its dividend payment every eleven years on average. Just a few days ago Exxon boosted its dividend by 5% for the 27th year in a row. The dividend is very well covered at the moment.
The dividend payout has declined from a high of 74% in 1999 to a low of 18% by 2008. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. The company has returned money to shareholders exclusively through share buybacks, which are typically not as consistent as increases in dividends.
Despite the low dividend payout ratio and low P/E ratio, I would need a dividend yield of at least 3% to initiate a position in XOM. I would appreciate it greatly if the company increases its payout of dividends over time at the expense of reducing its massive share buybacks. XOM has the potential to achieve an above average dividend growth over the next decade if oil prices increase over the next few year.
In comparison Chevron Corporation (CVX) trades at a P/E multiple of 5.60 and yields 4.00%, while British Petroleum (BP) trades at a P/E multiple 5 while yielding 8.40%.
I would consider initiating a position in Exxon Mobil on dips below $56.
Full Disclosure: None
- Best Dividends Stocks for the Long Run
- United Technologies (UTX) Dividend Stock Analysis
- 3M (MMM) Dividend Stock Analysis
- McDonald’s (MCD) Dividend Stock Analysis
The first week of this year has been brutal for many investors. It is during times like these that you see who really is a long-term invest...
ConocoPhillips (COP) just announced that it is cutting its quarterly dividend from 74 to 25 cents/share. This comes after management consta...
It is nice to have a diversified income stream . While many seem to look for a focused method, I look for a diversified method of generating...
In the first two weeks of this year, the stock market has been down a lot . For someone who invests for dividends, I am relatively agnostic ...
Today marks the eight year of Dividend Growth Investor website . I wanted to thank all of you who follow my humble site. I didn’t really exp...
Warren Buffett is one of the best investors in the world . He is skilled in the art of capital allocation. I have always suspected that the ...
Most of my money is invested in a portfolio of companies that have a track record of regular dividend increases . I have found that dividen...
Most readers know me as a person that buys a stock in a company I like, and then I keep building a position as long as valuation and allocat...
To be honest, I didn’t do much investing wise in January. Of course, I didn't panic and I stayed the course . Per my earlier article I s...
The first three weeks of this month have been terrible for investors worldwide . It could be painful to watch your portfolio value decrease ...