Dividend Aristocrats In Focus: Exxon Mobil Company

Up to date on March twenty ninth, 2024 by Bob Ciura

Lengthy histories of dividend progress aren’t typical within the power sector. The oil and fuel {industry} is extremely cyclical, stopping the overwhelming majority of corporations from elevating their dividends yearly with out interruption.

When oil and fuel costs are excessive, power corporations get pleasure from a windfall that flows by means of to buyers. However when commodity costs decline, income evaporate, and in some circumstances, dividends as effectively.

Because of this, there are simply two oil shares on the checklist of Dividend Aristocrats. Certainly one of them, Exxon Mobil (XOM), is the biggest oil firm within the U.S.

You’ll be able to obtain the complete checklist of all 68 Dividend Aristocrats, with essential metrics like dividend yield and price-to-earnings ratios, by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend will not be affiliated with S&P World in any means. S&P World owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet relies on Certain Dividend’s personal evaluate, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s based mostly. Not one of the data on this article or spreadsheet is official knowledge from S&P World. Seek the advice of S&P World for official data.

Oil and fuel could be a “boom-and-bust” {industry}. Earnings are extremely dependent upon commodity costs, which might fluctuate wildly in any given 12 months relying upon provide and demand forces.

However Exxon Mobil is totally different. It traces its roots to Commonplace Oil, which was based by John D. Rockefeller all the best way again in 1870.

This text will present an in-depth have a look at the founding father of Large Oil and a Dividend Aristocrat, Exxon Mobil.

Enterprise Overview

Commonplace Oil dominated the U.S. oil and fuel {industry} in its early days. It did this with a laser-like deal with drilling innovation, manufacturing progress, and limiting prices to beat its opponents. Commonplace Oil was virtually too profitable—it grew quickly that in 1911, it was dissolved by the U.S. Supreme Court docket on antitrust grounds.

Commonplace Oil was damaged up into 33 smaller corporations, lots of which grew to become giants on their very own, corresponding to Chevron (CVX).

Exxon Mobil operates in three enterprise segments. The Upstream section consists of oil and fuel exploration and manufacturing. Downstream actions embrace refining and advertising and marketing. Manufactured chemical compounds embrace olefins, aromatics, polyethylene, and polypropylene plastics.

Exxon Mobil is without doubt one of the largest power shares on the earth. In early February, Exxon reported (2/2/24) monetary outcomes for the fourth quarter of fiscal 2023.

Supply: Investor Presentation

Due to a slight enchancment in oil costs, which resulted from manufacturing cuts of OPEC and Russia, Exxon grew its earnings-per-share sequentially 9%, from $2.27 to $2.48.

The costs of oil and fuel have incurred a correction off their peak, however they continue to be elevated. Because of this, Exxon Mobil may nonetheless obtain earnings per share of about $8.40 this 12 months.

Development Prospects

The local weather for oil and fuel majors stays challenged as a result of oil costs are nonetheless down by almost half from the height ranges of 2014. Because of this, oil producers can’t depend on rising costs for income and earnings progress. As an alternative, rising manufacturing might be key. Due to its promising progress initiatives, Exxon expects to develop its manufacturing from about 4.0 to five.0 million barrels per day by 2025.

The Permian might be a significant progress driver. In 2023 Exxon agreed to accumulate Pioneer Pure Sources (PXD) for $60 billion in an all-stock deal. As Pioneer is the biggest oil producer in Permian, Exxon expects to greater than double its Permian output, to 2.0 million barrels per day in 2027.

Exxon Mobil expects to realize such an amazing efficiency primarily due to a steep discount in its common value of manufacturing, which is able to consequence from the addition of low-cost barrels in its asset portfolio. The opposite progress contributors might be a discount in structural prices in addition to significant manufacturing progress.

Guyana, one of the thrilling progress initiatives within the power sector, might be a significant progress driver of Exxon. Over the last 5 years, Exxon Mobil has greater than tripled its estimated reserves within the space, from 3.2 billion barrels to about 11.0 billion barrels.

Notably, about 90% of the investments of Exxon Mobil might be directed to reserves which are anticipated to yield an annual return in extra of 10% even at oil costs of round $35. Because of this the oil big will high-grade its asset portfolio drastically within the upcoming years.

The EPS progress plan of Exxon Mobil additionally features a share repurchase program of as much as $35 billion in 2023-2024. This quantity is ample on the present inventory value to cut back the share rely by ~7%.

Nonetheless, given the excessive cyclicality of this enterprise, it’s cheap to count on a -4% common annual decline of earnings per share over the following 5 years off the record-high comparability base.

Aggressive Benefits & Recession Efficiency

Exxon Mobil enjoys a number of aggressive benefits, primarily its great scale, which offers the flexibility to chop prices when instances are powerful. The corporate can also be the worldwide chief in experience in its enterprise, as most oil corporations observe the technical procedures that Exxon Mobil has written.

Exxon Mobil additionally has the monetary energy to take a position closely in new progress alternatives. The corporate has allotted tens of billions of {dollars} up to now few years on capital expenditures to assist future progress.

One other aggressive benefit is Exxon Mobil’s industry-leading steadiness sheet. It has a credit standing of AA-, which helps it preserve a low value of capital.

Exxon Mobil’s built-in enterprise mannequin permits the corporate to stay worthwhile, even throughout recessions and durations of low commodity costs. The corporate noticed volatility through the Nice Recession however nonetheless remained worthwhile:

2007 earnings-per-share of $7.26
2008 earnings-per-share of $8.66 (19% improve)
2009 earnings-per-share of $3.98 (54% decline)
2010 earnings-per-share of $6.22 (56% improve)

Persevering with to generate regular income allowed Exxon Mobil to lift its dividend yearly. The oil main has raised its dividend for 41 consecutive years.

Valuation & Anticipated Returns

Exxon’s {industry} is extremely cyclical. Commodity costs drive outcomes, and therefore they’re extremely unstable. We consider that the power market is now close to the height of its cycle and count on oil and fuel costs to deflate within the upcoming years, primarily because of the file variety of clear power initiatives which are beneath improvement proper now.

We count on Exxon Mobil to earn about $8.40 per share in 2024 and incur a -4.0% common annual decline of earnings per share over the following 5 years.

The inventory is at present buying and selling at a price-to-earnings ratio of 13.8. That is barely larger than our truthful worth estimate of 13 instances earnings. A declining earnings a number of may cut back annual returns by 1.2% over the following 5 years.

Dividends will add to shareholder returns. Exxon Mobil has grown its dividend for 41 consecutive years and at present gives a 3.2% yield. Given all of the above elements, Exxon Mobil inventory will be moderately anticipated to supply a -2% common annual complete return over the following 5 years.

The poor anticipated return needs to be anticipated, provided that we’re close to the height of the cycle of this extremely cyclical {industry}. We suggest promoting Exxon at its present value. The dividend yield of the inventory can also be close to a decade low, one other doable sign that the inventory is overvalued from a long-term perspective.

Ultimate Ideas

Exxon Mobil posted file earnings final 12 months due to exceptionally favorable world oil and fuel situations. Even higher, as these situations aren’t more likely to change considerably quickly, the oil main is predicted to proceed thriving within the upcoming quarters.

Nonetheless, because of the excessive cyclicality of this {industry} and the elevated valuation, XOM inventory is unattractive from a long-term perspective.

Additional Studying: The Chowder Rule | How To Calculate The Chowder Quantity.

Moreover, the next Certain Dividend databases comprise probably the most dependable dividend growers in our funding universe:

If you happen to’re searching for shares with distinctive dividend traits, think about the next Certain Dividend databases:

The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: