Over the past decade this dividend stock has delivered an annual average total return of 8% to its shareholders.
At the same time company has managed to deliver a 6.40% average annual increase in its EPS since 2000. The forecasts for the foreseeable future are for a 45% increase in the EPS in 2010 to $5.80/share, followed by an increase in EPS to a $7.27 by 2011. The sheer scale of the company gives it huge 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 company has over 130 projects worldwide whose goal is to increase reserves of oil and natural gas. The company’s future acquisition of XTO Energy will boost natural gas production by over a quarter. XTO’s resources are close to the markets it serves. In addition to that technical expertise from XTO energy could assist Exxon Mobil in developing new shale fields worldwide.
The ROE had consistently increased from less than 15% in 2002 to over 38% in 2008, before dipping back to 17.30% last year on lower profitability.
Annual dividend payments have increased by an average of 7.30% annually since 2000, which is higher 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 1970, XOM has indeed managed to double its dividend payment every ten years on average. Just a few days ago Exxon boosted its dividend by 4.80% for the 28th year in a row.
The dividend payout has declined from a high of 57% in 2002 to a low of 17.8% in 2008., before increasing to 41.70% last year. 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.
Overall Exxon-Mobil has low dividend payout ratio and a low P/E ratio of 14. In addition to that the stock yields 2.80%. 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 11 and yields 3.70%, while British Petroleum (BP) trades at a P/E multiple 8 while yielding 7.40%. I would consider adding to my position in Exxon Mobil as long as the stock is below $70.
Full Disclosure: Long BP, CVX and XOM