Why Exxon Should Significantly Increase its Dividend 50 comments
-
Font Size:
-
Print
- TweetThis
The following chart displays the ticker symbol, price, yearly dividend, and current yield for a few of the world’s largest oil and gas companies. The data is presented is as of the close on October 8, 2009. Dividend yields were obtained or calculated from online financial service data and/or individual oil company websites. I apologize in advance for any errors.
The companies are sorted from highest to lowest dividend yield.
Company | Stock Symbol | Current Price | Yearly Dividend | Current Yield |
BP plc | (BP) | $52.76 | $3.36 | 6.37% |
Royal Dutch Shell | (RDS.A) (ADR) | $57.09 | $3.36 | 5.89% |
Total S.A. | (TOT) (ADR) | $59.19 | $3.24 | 5.47% |
Repsol YPF | (REP) (ADR) | $27.39 | $1.46 (2008) | 5.33% |
StatOil | (STO) (ADR) | $23.22 | $1.14 | 4.91% |
Eni S.p.A. | (E) (ADR) | $50.79 | $2.12 | 4.17% |
Conoco Philips | (COP) | $51.41 | $2.00 * | 3.89% |
Chevron | (CVX) | $71.45 | $2.72 | 3.81% |
Exxon Mobil | (XOM) | $69.05 | $1.68 | 2.43% |
Petrobras | (PBR) (ADR) | $47.44 | $0.94 (2008) | 1.98% |
*NOTE: COP just announced an increase in the quarterly dividend to $0.50/share.
All companies listed pay dividends quarterly except the following:
Ø Eni S.p.A: paid twice a year; each ADR is worth 2 Eni shares; converted from Euro
Ø StatOil: paid once per year, each ADR Is worth 1 StatOil share; converted from NOK. Statoil’s policy is to pay out 45-50% of consolidated net income through dividends and share buybacks.
Ø Repsol YPF : paid twice per year; each ADR is worth one Repsol share; converted from Euro
Ø Total S.A: paid twice per year; each ADR is worth one Total share; converted from Euro
Several observations are obvious when reviewing this information. First, it is clear European based oil companies pay substantially higher dividends than do its U.S. based peers. All things being equal (production growth, balance sheet, cash flow, etc), this is favorable for investors not only from a higher yield standpoint, but also because the U.S. dollar is experiencing systemic weakness.
Second, it is obvious that Exxon Mobil’s dividend is completely out of step with its peers. The only company paying a smaller dividend is Petrobras. However, I’ll gladly give Petrobras a pass as they are raising and spending billions of dollars to unlock the riches in its deep offshore oil fields. This means shareholders in PBR are going to be rewarded in the near future by much higher production growth rates and therefore higher profits.
On the other hand Exxon Mobil’s production in 2008 actually fell year-over-year in spite of $145/barrel oil prices. Taking these issues into consideration, Exxon Mobil is dead last in terms of dividend yield and rewarding the shareholder. Not only is it last, but its dividend yield is over 1% lower than its nearest peer (Chevron). Exxon Mobil is not even in the game.
XOM 1 Year Stock Price Chart
I know, I know…XOM fell much less than the S&P during the recent market carnage and shareholders should be happy with that. And we are. However, XOM is down -13.5% YTD while the rest of the market is rallying and oil is up to $70 from the recent lows in the $40 area. So, that argument doesn’t hold water. The next excuse is “we’ve raised the dividend every year for the last … yada yada yada”. However, when was the last time Exxon significantly raised the dividend yield or paid out a special dividend to its shareholders? Answer: I honestly cannot remember.
Exxon Mobil has arguably the best efficiencies in the business and a pristine balance sheet. They are rock-solid, and a cash and profit generating machine. I read a report awhile back during the “crisis” in which an analyst considered the U.S. government more of a financial risk than Exxon and that its CDS was trading at a discount to U.S. treasuries. I don’t know if there is any truth in that report, but certainly Exxon Mobil can afford a competitive dividend.
So, Exxon Mobil needs to shift a significant portion of the billions in cash it currently has targeted for stock buybacks over to the “dividend” side of the ledger. Conoco Philips increased its dividend the other day and the stock is up over 6% since the announcement. Exxon needs to follow suit. Exxon could raise its dividend from $1.68/year to $3.00/year and it would still only yield 4.3% It should do just that! Even then XOM would simply be in the middle of the pack with respect to its peers. I encourage XOM shareholders to contact the company directly – by phone, by email, and by snail mail and demand a dividend increase.
A dividend increase would no doubt boost the lagging stock price as well. In these times when CD rates are below 2%, money market returns negligible, and bond yields scrapping the bottom, investors want a decent return on their money. Why would anyone buy XOM yielding 2.43% when they could buy BP and get over 6% while at the same time BP is increasing oil production at a faster rate than XOM? If you’re going to get a skimpy dividend, why not buy Petrobras instead? At least you have the prospect of a significant growth in oil production and profits over the next 10 years and probably longer.
As long as I am dishing out advice to Exxon Mobil, why in the world are they spending millions on algae and biofuel research when the solution is staring them right in the face and they have already spent billions in Qatar on it? Of course I am talking about natural gas. That’s right - Exxon needs to line up and support natural gas transportation for America. Not only would it benefit the company’s worldwide LNG position, but it may also work wonders for its non-existent “green” image. Environmentalist are not fooled – they know biofuels and algae and all the rest are just distractions aimed at keeping us addicted to liquid fuels.
In the case of America, this liquid fuel is gasoline derived from foreign oil and it is quite simply bankrupting the country. Where is the Patriotism from the Exxon Mobil executives (Jim Mulva at COP, are you listening too? Considering COP’s natural gas position, you have an even bigger reason to support natural gas transportation). This isn’t just a green issue or a strategic domestic energy decision (although these should be reason enough!), there are long-term business reasons to support natural gas transportation.
If Exxon is stonewalling natural gas transportation because it somehow thinks it would cannibalize its oil business, think again. China, India, and the Middle East will be sucking up all the incremental oil production the planet has to offer over the coming years. Exxon’s profit margins in oil are secure as can be in an era where worldwide oil production will not keep pace with worldwide oil demand (assuming a functioning world economy….). Oil at $70/barrel during a near depression tells you that much. But in the long run if Exxon fails to get behind the natural gas transportation business, it may well see smaller companies like Clean Energy Fuels (CLNE), Chesapeake Energy Corp. (CHK), Devon (DVN), and COP eat into a business that will be growing, green, and great!
Disclosure: Long on COP, STO, and PBR.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 50 comments:
going thru Exxon-Mobil’s 2007 Annual Report, it showed from ’03 to ’07 - # of shs o/s diluted went down from 6.7 bill to 5.6 bill. As a sharelholder, i much prefer a lower share count; which results in higher eps in the long run; then dividends. Just my preference.
I would like to see Exxon increase its dividend as well. But I would prefer Exxon keeps its immaculate balance sheet over a higher dividend payment. Exxon has a higher credit rating than the US government at the moment. I think the best investments in big oil are Exxon, Chevron, BP, Shell and Total.
I do not like Chesapeake or ConocoPhilips that are over extended in debt. I am quite surprised to see COP and CHK rising every day while XOM and CVX stay dormant.
If you are a buy and hold kind of investor you better get paid a dividend because oil companies that don't persue alternate forms of energy will eventually be out of business. Exon has chosen not to persue developing other forms of energy so they are a classic example.
I have accumulated BP since the 1980's my average price per share allows the dividend yield to be over 10%. How have Exon investors fared over the same time frame with their low dividend?
I have to disagree with you that investments in oil companies are all going to zero for several reasons:
1) All major oil companies are continuously buying up their competitors or new reserves (Exxon in Ghana, Shell in Australia, and everyone is a player in the Canadian oil sands), but I agree this is a losing game that ends in 10 to 20 yrs.
2) All major oil companies are buying back their shares. They are shrinking their share base. Exxon spends half its money (30 billion / yr) on share buybacks. At the current rate, Exxon will be a private company before 2020. Every buyback campaign cranks up the share value.
3) I am a believer that significant advances in alternative energy will come from big oil companies. They all know peak oil is real. CEO's from Total, BP, Chevron, etc. have all publicly admitted this. Their current spending on alternative technology is small at the moment, but they have they have money to scale up production when the time comes. You have Exxon investing algae, Chevron in biobutanol, Shell in biofuels &hydrogen, Total in biomass, GTL & hydrogen and BP in wind, solar & biofuels. Unlike the internet revolution where quantum leaps came from two guys working in their garage, alternative energy technology needs big money to advance.
longoil: well, Exxon can afford to pay a competitive dividend and keep a pristine balance sheet. every company on that list is able to pay a decent dividend and keep their finances in order, although i would agree that COP's debt level is higher than they or i would like. however, they just announced how they are going to reduce debt by selling some assets, and that is why COP popped (in addition to raising the dividend). Exxon's dividend is simply a joke. investors deserve some income from a company that makes so much net profit. see this is the problem, the somehow have convinced folks like you, and lucky lenny, that they cannot afford to pay you a decent dividend and keep their finances in order. this is simply untrue. they are simply keeping the money for executive compensation. as someone said in my article on STO's policy to pay out 45-50% of net income in dividends, the entire board of directors at STO make less than the CEO of XOM. so, that's where the money is going. why shareholders like yourself are complacent about that gives me a headache, and lets them get away with it.
long_on_oil: well, it will be a very long time before XOM goes out of business, but i obviously agree they can afford and should be paying a higher dividend. unfortunately, as some of these comments show, they have somehow convinced many of their shareholders that they are better off with a low dividend! (?) until XOM shareholders get more demonstrative, and flood the company with complaints, i doubt they will take action. they may not take action anyway as they are arguably the most powerful company in the world.
I agree the CEO at Exxon is overpaid, but Exxonmobil's finances are completely in order. Now, compare this to the CEO salaries in the following banking and investment firms in 2008.
1) Lloyd Blankfein, Goldman Sachs Group Inc., $42.9 million
2) Kenneth Chenault, American Express Co., $42.9 million
3) Vikram Pandit, Citigroup Inc., $38.2 million
4) Jamie Dimon, JPMorgan Chase & Co., $35.7 million
As a shareholder of Exxon, I say I got my money's worth. If I were a shareholder of bank or investment firm I would say I was cheated.
Regardless, i would also like to see Exxon increase their dividend .... regards
On Oct 09 09:03 AM long_on_oil wrote:
> Since, in the end, all oil companies go out of business I prefer
> to get paid for my investment in the form of dividends. If you buy
> Exon and never sell, your investment is going to zero so who gives
> a damn how much money they make. Just look at the airlines and
> you have got Exon mobil.
> If you are a buy and hold kind of investor you better get paid a
> dividend because oil companies that don't persue alternate forms
> of energy will eventually be out of business. Exon has chosen not
> to persue developing other forms of energy so they are a classic
> example.
> I have accumulated BP since the 1980's my average price per share
> allows the dividend yield to be over 10%. How have Exon investors
> fared over the same time frame with their low dividend?
Either way XOM is underappreciated.
about my comments and I definately not in the lucky lenny camp. I have never owned or will I ever own Exxon because at my age I am looking at dividend income and BP is clearly better. Based on current earnings BP is paying out 91% which is probably to high but I will stick with BP over the rest of the pack.
I totally agree with the author these oil companies need to pay dividends based on earnings.
Geologist: You better redo your analysis and include dividend income instead of just capital appreciation and you will find a different story. XOM may still come out on top but not by 5X.
If any of you would like to figure the performance of the oil companies since 1980 which includes dividend reinvestment I am curious about the outcome. Would be a good SA article but I don't have time to do it.
On Oct 09 10:07 AM bindlepete wrote:
> Is Exxon playing a game of low dividend =low stock price = more shares
> bought into their treasury? Is this manipulation? Is this good business
> and if so for whom? Management and their personal holdings until
> they decide to bump it and get out?
On another related subject: Rewrite the article and substitute Petrobras for XOM. Petrobras is hughly profitable yet has a paltry dividend. Sure, they are raising and spending billions of dollars to unlock the deep offshore oil fields. But, they have long had a paltry dividend, even before the post-salt discoveries.
You wrote: "This means shareholders in PBR are going to be rewarded in the near future by much higher production growth rates and therefore higher profits."
Higher profits are great. But, the higher profits only get transferred to shareholders through dividends or buybacks. If PBR remains consistent to its past actions and is unwilling to do either, then what good is it for the shareholders. The profits of PBR are being siphoned off by the state - thru bloated payrolls, repaying political favors and thru excise taxes. Shareholders will get screwed.
What good are higher profits without shareholder returns?
An extraction business that is depleting assets needs to distribute dividends to shareholders, plain and simple.
On Oct 09 09:03 AM long_on_oil wrote:
> Since, in the end, all oil companies go out of business I prefer
> to get paid for my investment in the form of dividends. If you buy
> Exon and never sell, your investment is going to zero so who gives
> a damn how much money they make. Just look at the airlines and
> you have got Exon mobil.
> If you are a buy and hold kind of investor you better get paid a
> dividend because oil companies that don't persue alternate forms
> of energy will eventually be out of business. Exon has chosen not
> to persue developing other forms of energy so they are a classic
> example.
> I have accumulated BP since the 1980's my average price per share
> allows the dividend yield to be over 10%. How have Exon investors
> fared over the same time frame with their low dividend?
On Oct 09 09:38 AM Michael Fitzsimmons wrote:
> exxon has the finances to both
> buy back shares AND pay a reasonable dividend. their currrent dividend
> is one reason the stock is drastically underperforming the market.
> as i said in the article, why would anyone buy XOM stock and its
> paltry dividend when they have many more opportunities for growth
> in production and a decent dividend yield? XOM's dividend is quite
> simply hurting the stock and penalizing its shareholders.
>
> longoil: well, Exxon can afford to pay a competitive dividend and
> keep a pristine balance sheet. every company on that list is able
> to pay a decent dividend and keep their finances in order, .....Exxon's dividend is simply a joke. investors
> deserve some income from a company that makes so much net profit.
> see this is the problem, the somehow have convinced folks like you,
> and lucky lenny, that they cannot afford to pay you a decent dividend
> and keep their finances in order. this is simply untrue. they are
> simply keeping the money for executive compensation. as someone said
> in my article on STO's policy to pay out 45-50% of net income in
> dividends, the entire board of directors at STO make less than the
> CEO of XOM. so, that's where the money is going. why shareholders
> like yourself are complacent about that gives me a headache, and
> lets them get away with it.
>
> long_on_oil: well, it will be a very long time before XOM goes out
> of business, but i obviously agree they can afford and should be
> paying a higher dividend. unfortunately, as some of these comments
> show, they have somehow convinced many of their shareholders that
> they are better off with a low dividend! (?) until XOM shareholders
> get more demonstrative, and flood the company with complaints, i
> doubt they will take action. they may not take action anyway as they
> are arguably the most powerful company in the world.
Given their weak investments in alternative energy, what does that tell you about the real future of these oil majors?
On Oct 09 09:26 AM longoil wrote:
> Their current spending on alternative technology is small at the
> moment, but they have they have money to scale up production when
> the time comes. You have Exxon investing algae, Chevron in biobutanol,
> Shell in biofuels &hydrogen, Total in biomass, GTL & hydrogen
> and BP in wind, solar & biofuels. Unlike the internet revolution
> where quantum leaps came from two guys working in their garage, alternative
> energy technology needs big money to advance.
I also think that XOM will probably be taxed unmercifully.
Does anyone else think that the Europeans and South Americans may have more forgiving overlords, while the US is doing its best to plunder its greatest companies? I don't have any statistics and am just raising the question: Which large oil companies pay more taxes, and how likely are their profits to be raided by the government?
bloomberg.com/apps/new......
bindlepete: i can only hope XOM took (and takes) advantage of the low price to execute their buyback. that said, i'd like to see at least half the share buyback money go into the dividend instead.
geologist: i haven't checked your figures, but certainly XOM has greatly appreciated since 1980. at the same time, you pinpoint the problem: long time shareholders in exxon (and mobil) are sitting on a huge tax gain liability. therefore, if they sell, they'll get slaughtered. so they hold. but while they hold, why don't they deserve a competitive dividend? i mean not even close, to their peers. it's not fair to the long-term shareholder who now, more than ever, needs some friggin income!
tom armistead: well, not sure i agree. try to buy some taste great/less filling beer with BP dividends versus XOM's and see which one fills up your fridge first. in other words, the share buybacks don't give you income unless you sell the shares (and get taxed to death). i am not asking them to match BP's yield, but jeez, certainly they should get the dividend somewhere between 3.5% to 4%! even then, they'd still be middle of the pack on dividend yield, but best in the world in operating efficiencies and net income. it just doesnt make sense and isnt fair.
long_on_oil: once i reread my earlier response to you it seemed a bit harsh and directed personally at you, which was not my intent. what i meant was, exxon has done a great job at quelling shareholder discontent about the dividend. it's almost as if the shareholders are too intimidated to even ask XOM to fix what is so obviously a very very unfair dividend policy. i mean look at the chart - why in the world should exxon mobil be dead last in dividend yield when it is the best performer in the entire space in terms of generating cash and net income and has a pristince balance sheet? it's ridiculous! meanwhile, the executives make out like bandits and get their share - and much much more.
Living4Dividends: i guess we'll agree to disagree on petrobras. i don't expect (and dont want) a dividend out of them. i'd much rather they get the drilling done and be in position to cash in bigtime on the next huge oil spike, which will be coming sooner rather than later. i expect the stock to pop bigtime! with respect to returns, have you calculated PBR's return since year 2000? i'll take that anyday! that said, we do agree on XOM, so thanks for your support on the dividend issue.
Dirk: excellent comment, and that is perhaps the only theory that might supports their skimpy dividend policy. that said, there must be thousands or hundreds of thousands of investors who owned exxon (and mobil) stock during the down years and now are sitting on huge cap gains. it's not fair to make them sell shares to get access to money and pay taxes on those gains when a decent dividend may well prevent them from having to sell at all. at the same time, if they raised the dividend, those wanting stock appreciation would get that too. it's a win win situation! just look at the action at conoco recently after raising the dividend to $2/yr. and they have a large debt load. imagine how XOM would pop if the board of directors would simply raise the dividend to say a 3.5% yield. 4% and the stock would have a serious run-up.
optionsgirl: well, i like them both but for different reasons. PBR badly needs investment dollars to get the oil, so they cannot afford to totally diss the shareholders. they would not have been able to issue the bonds on the NYSE so succesfully if money managers were that scared of luna. CNBC just totally mischaracterizes the guy (imho). brazil, while a rising star, still needs investment and they know it. after getting some funding from china and even from the american gov (can you believe that??) they still need more investment money to build out the deepwater infrastructure. they aren't going to screw the ADS shareholders as it would severely reduce their capital when they need it most. that said, if china comes in and just finances the entire thing (which is possible!), then it would become more problematic. i think production growth at PBR is going to be first in class very shortly and remain that way for at least a decade. as far as taxation goes, in general i believe europe has higher royalties and higher taxes. american companies have had it made for decades, which is why BP is america's largest oil producer and STO and RDS have also invested heavily in the GOM. note the recent supreme court decision on the royalty matter (in favor of big oil). at the same time, certainly the atmosphere is changing in america from bush to obama, and the interior secretary is looking at things much more closely. however, obama and chu, by keeping the US addicted to oil and "clean coal" (wink wink), cannot afford to tax the oil companies to death or american oil production will plummet and then we'll be even more hosed than we already are. of course, realistically, all these companies are international in scope and take local tax/royalty issues into consideration wherever they invest worldwide.
Brilliant point !!
U forgot to mention "economical carbon sequestration" and "efficient corn ethanol" these are the siblings to "clean coal"
You guys forget that XOM has almost $200 b in treasury stock in their vaults from all the buybacks they have done. Between the treasury stock and their super AAA credit rating they have the luxury of siting back and waiting and then buying any other public energy company or new "renewable" technology company that regulators will let them get away with. So, let the government spend billions for R&D and then when the time is right they could enter the market if the so desire.
The $4 billion purchase of Kosmos Energy's stake in Ghana might not go through (because of the Ghanaian government), but XOM is stilling pretty and in a position to make this deal and more. I see them doing similar deals over the next few years. The have the financially flexibility to sit back and cherry pick if they want to. Their main competition in buying new assets will be from China. Can COP do that right now? No. COP has worked themselves into a small corner, but XOM has the flexibility to do what they want.
With the increase of China's assets and the size of the national oil companies like Saudi Armaco and NIOC, I could see a day where the seven sisters are all back together under one banner. They were busted apart because they controlled 90% of the entire market in the U.S., but you can't say that any more. There will come a day when compared to China and the "nationals" and new renewables it won't matter if they are together again.
I could even see XOM buying Rosneft or Lukoil someday if the Russians place nice. But, more likely they will buy strategic assets on a cherry picking basis. I have been very happy with their capital management for the past 15-years, and if they do raise the dividend I hope it is below CVX's 3.80% yield and no more.
I have started a new program where I am taking the dividend I get from XOM and look for junior's with very special situations on future asset plays. So, I am basically doing what XOM is doing with the money that they don't pay out, or can at any time. I am building a portfolio of companies with strategic leases that I think are undervalued and will pay off down the road. Similar to Kosmos. So, I can try to buy them now, and then XOM (or one of the others) will come by later and buy them up.
I can't really find fault with the way XOM has managed the company since I have owned some shares. I can say that about COP (which I don't own). I notice a lot people comparing the exploration of today with that of yesterday. Drilling technology keeps getting better, and with $250 dollar-per-barrel oil by 2025, I see more advances coming.
LOL
On Oct 09 10:07 AM bindlepete wrote:
> Is Exxon playing a game of low dividend =low stock price = more shares
> bought into their treasury? Is this manipulation? Is this good business
> and if so for whom? Management and their personal holdings until
> they decide to bump it and get out?
Here's the link:www.taxfoundation.org/...
I do agree that Exxon should pay a better dividend.
I don't see Exxon going out of business in my lifetime. A good portion of their profits come from downstream operations. They also have smart management.
Exxon is not a company that stampedes with the herd during short term problems. They are in it for the long haul. Just like they didn't overspend during last year's peak in crude prices. Some companies rushed out and bought at the peak. Exxon sat quietly by and watched the $150/bbl prices evaporate.
I think watching Exxon's actions gives us a more accurate picture of the future energy situation than anything our government or media pushes.
Buying the Kosmos stake in Ghana at $4 billion is chump change for Exxon. Exxon earns $40 billion profit per year and the Ghana stake would take them only 5 weeks to pay off in full.
I can see the "seven sisters" reunited as well in the near future. Already Exxon has swallowed up Mobil and Chevron has had Texaco and Gulf under their banner for a while. Exxon + Chevron is a definitely possibility. The non-US seven sister members like BP, Shell and the eighth sister Total (former CFP) might form a European super oil company. A XOM/CVX plus BP/RDS/TOT merger might be a bit trickier because of all the potential anti-trust issues. But then again American Lucent (former ATT) merged with French company Alcatel.
> jack
For those who need income, sell some shares and pay your second tax. Management should not force shareholders who prefer to accumulate wealth to pay two taxes.
They will whip the mainstream media into a frenzy over the "windfall" profits being made by natural resource producers and it will work because people will be confused and hungry.
For this reason, I own no US resource companies. PBR and STO are my best bets for the next ten years.
MJE_PDX: well, certainly it was both the dividend increase and the asset sales to whittle down debt. that said, do you disagree that XOM wouldn't have a similar pop if they increased their dividend substantially to say 3.5-4%? i bet it would, perhaps even more so than COP. with respect to XOM's cash hoard and AAA rating, i am certainly not forgetting it. in fact, those facts merely support my position that their skimpy dividend is way outta whack! i would agree that XOM's main competition is china, but it's interesting to see that as you point out, while china is locking up oil assets around the world, XOM has kept its wallet shut (with the exception of ghana). also, china has access to oil assets in countries that XOM does not (iran and some ruthless countries in africa for example). wrt the dividend and comparison to CVX, if it wasn't for the tax consequences of selling XOM, i'd rather own CVX, its higher dividend, and its outlook for increasing production. note the recent announcement that CVX made that oil production has increased by 40,000 barrels a day this quarter now that their rig in the GOM is up and pumping. there, you're getting a decent (though still comparably low) dividend AND increasing production. why on earth an exxon mobil shareholder would be happy with the current dividend is beyond my understanding. with respect to your $250/barrel oil by 2025, if the U.S. does not adopt natural gas transportation, i $500/barrel is possible when you factor in supply/demand fundamentals with the falling U.S. dollar policy now supported by obama/bernanke (as it was with bush/greenspan). this is a disaster waiting to happen. wrt your comments on XOM waiting out "alternative" energy, there is NO research needed for natural gas transportation - it's has been a proven technology since the turn of the last century, and we are awash in abundant, clean, and cheap natural gas. XOM invested billions in its Qatar LNG program, eyeing the U.S. market as well as asia and europe. however, when the smaller companies discovered the shale assets in the U.S., it must have dramatically altered the financials of the Qater project and XOM's investment there. still, XOM (like COP) executives refuse to jump on the natural gas transportation bandwagon. it's hard to understand since they are american companies, american executives, and they sit and watch america go down the tubes as a result of its addiction to foreign oil.
realold: yes, i am a fan of foreign oil companies. i always have to chuckle when folks talk about emerging market risks (as in brazil) as though there are no risks in the US market! we've seen under bush that the country has turned from capitalism to fascism. we've seen under both greenspan and helicopter ben bernanke that the helicopter of dollars everyone would thought would be dropped on middle class americans that need it, instead were dropped on the most wealthy executives that ran the banks, insurance, and national mortgage markets (not to mention the US treasury) into the ground. add to that, bush doubled the US debt in 8 years, and obama's continuation of these disastrous bush policies, and wha-la, you have gold at $1050/oz and heading, imho, much much higher. i reference malpass's excellent WSJ article in thursday's edition and i agree 100% with his suggestions on how to fix these problems.
optionsgirl: i'm not sure comparing corporate tax rates to oil and gas royalty rates is a valid comparison, although components of the overall corporate tax rate would likely contain royalty rates (at least they should). also needed to be factored in is the currency. as david malpass pointed out in his excellent WSJ editorial thursday, investment fled britain during the 50's and 60's as the pound crumbled. since the U.S. dollar is undergoing similiar systemic weakness today, and there appears no end in sight (as malpass points out, obama is continuing the disastrous weak dollar policy of the bush adminisration), U.S. policymakers would be very wise to take that into consideration when considering future oil and gas royalty rates.
k45: the foreign tax issue is a good point which i neglected in the article. thanks for bringing it up. most ADR owners get these taxes taken out automatically in their brokerage accounts. then they take the foreign tax credit on their US tax return. all that said, and even taking foreign taxes into account, the european oil companies still pay much larger, almost double, the exxon mobil dividend. so, while its certainly valid to identify the foreign tax issue, it does not support exxon's skimpy dividend policy (and you appear to agree with that). when you say exxon's actions give us a more accurate picture of the future of energy than does the media, what does that picture mean when exxon's production in 2008 was down year-over-year even when oil prices were over $145/barrel? does this mean exxon was merely keeping their oil in the ground for later, or, that exxon is having trouble replacing production and reserves? their investment in ghana, for example, was the first large new investment they have made in new oil reserves in years and years (at least that i am aware of). anyhow, i'd be interested in your thoughts and more explanation of your last statement. thx.
longoil: the consolidation issue is very interesting these days. i don't think XOM can do it due to monopoly laws. if it could, i think it would have pounced on COP when the stock collapsed. even with COP's debt load, it's portfolio of assets is very attractive, its low oil cost in prudoe a goldmine (and XOM already operates there along with BP), and COP does produce close to 1.8 million barrels a day. but XOM didn't make a move, because i am sure they think the DOJ would nix it. but the bigger issue is what pickens talked about on CNBC this week: there is a game that the US is not participating in and where china has a huge advantage having state run oil companies. china is going around the world now, and has the cash and organization to buy up oil. the US oil companies lack this financial power and the backing of a country's treasury. now, it was *very* interesting to me that somehow the U.S. government made an investment in brazil's petrobras. how does a "capitalist" country's government do that (again i "wink wink"). that would be a good idea for an article, write about US oil and gas companies to consolidate in order to better compete with china. thanks for the post!
john gordon: you won't be surprised to see my comment that a better and fairer way to deploy their cash hoard would be to aim it at the dividend rather than stock buybacks (at least a *much* larger percentage).
lorddarley: well, i'd much rather pay 15% taxes on a dividend then have to sell shares and pay cap gains taxes. further, their shares held up better last year, no doubt, but as i pointed out in the article they are down -13.5% YTD. as i suspect, this underperformance at a time when oil has recovered from under $40 to $70 is due to the fact that people are searching for yield. the dividend wasn't a big deal when the market was on a tear the last few years. but now, with CD rates under 2%, money market funds near 0%, and bonds very pricey with rates no where to go but higher, again, why would anyone buy XOM when it has so many better alternatives in terms of yield and companies like CVX and BP growing production faster? the argument doesn't hold water, and the stock's underperformance this year proves it.
yellowhoard: i like the foreign oil companies as well. i also like, you guessed it, GOLD.
While I understand what you are saying and you make good statistical points to support your argument, I think you missed the mark on this one.....
I apologize in advance for the first couple of lines but to some free market people your premise reads like this:
"Exxon "needs" to raise it's dividend because the yield isn't "fair"....."
and their immediate reaction is this:
"Good God, I thought was at SA not some Bizzaro World Reditributionist article sponsored by ACORN!....."
Remember....You have the CHOICE to NOT buy XOM and buy something else that will pay you a higher dividend.
Could XOM raise it's dividend? Obviously the answer is Yes.....
Whether they should or not is another question entirely.
Given our current political climate I think it's in XOM's best interest to sit on it's pile and look to buy the winners of the Renewables/Alternatives race. This will accomplish much more in the long term, both politically and for the longevity and growth prospects of the company.
The political advantage should be obvious. After they have absorbed renewable/alternative winners under the XOM banner they won't be as likely to be the political whipping boy of the "Left" since much of their business will be derived from "liberal" pet causes. (Though I think that if XOM became a 100% solar company tomorrow there are many on the left who would still assail them for the 1989 Valdez disaster 100 years from now.)
Someone above me posted that "'oil comanies' would be worth zero in 10-20 years".....perhaps that is correct, but only in terms of semantics. XOM, BP, Royal Dutch Shell and many others are ENERGY companies and will be around far longer than any of us will be alive.....The only truth to his/her statement is that oil would no longer be their primary business, but I believe that it will be longer than the twenty year time horizon.
What we as investors need to remember is that our investment is basically putting our trust in the people running a company to make us money. If we mistrust their motivations based on what we feel are inadequate dividends or any other factor then we alone need to rethink our allocation of resources. No one is forcing us to buy into a certain company any more than they force us to buy a particular brand of shoes. This is the beauty of the free market.
Below is a replay of an earlier comment that makes the most rational sense to me about why XOM would choose it's current path.....
On Oct 09 11:04 PM MJE_PDX wrote:
> COP did not go up because of raising the dividend, it went up because
> they said they were going to sell $10 b in assets and use that money
> to pay down debt. They also raised the dividend to retain existing
> investors from fleeing and maybe attract some new ones.
>
> You guys forget that XOM has almost $200 b in treasury stock in their
> vaults from all the buybacks they have done. Between the treasury
> stock and their super AAA credit rating they have the luxury of siting
> back and waiting and then buying any other public energy company
> or new "renewable" technology company that regulators will let them
> get away with. So, let the government spend billions for R&D
> and then when the time is right they could enter the market if the
> so desire.
>
> The $4 billion purchase of Kosmos Energy's stake in Ghana might not
> go through (because of the Ghanaian government), but XOM is stilling
> pretty and in a position to make this deal and more. I see them doing
> similar deals over the next few years. The have the financially flexibility
> to sit back and cherry pick if they want to. Their main competition
> in buying new assets will be from China. Can COP do that right now?
> No. COP has worked themselves into a small corner, but XOM has the
> flexibility to do what they want.
>
> With the increase of China's assets and the size of the national
> oil companies like Saudi Armaco and NIOC, I could see a day where
> the seven sisters are all back together under one banner. They were
> busted apart because they controlled 90% of the entire market in
> the U.S., but you can't say that any more. There will come a day
> when compared to China and the "nationals" and new renewables it
> won't matter if they are together again.
>
> I could even see XOM buying Rosneft or Lukoil someday if the Russians
> place nice. But, more likely they will buy strategic assets on a
> cherry picking basis. I have been very happy with their capital management
> for the past 15-years, and if they do raise the dividend I hope it
> is below CVX's 3.80% yield and no more.
>
> I have started a new program where I am taking the dividend I get
> from XOM and look for junior's with very special situations on future
> asset plays. So, I am basically doing what XOM is doing with the
> money that they don't pay out, or can at any time. I am building
> a portfolio of companies with strategic leases that I think are undervalued
> and will pay off down the road. Similar to Kosmos. So, I can try
> to buy them now, and then XOM (or one of the others) will come by
> later and buy them up.
>
> I can't really find fault with the way XOM has managed the company
> since I have owned some shares. I can say that about COP (which I
> don't own). I notice a lot people comparing the exploration of today
> with that of yesterday. Drilling technology keeps getting better,
> and with $250 dollar-per-barrel oil by 2025, I see more advances
> coming.
>
And buyer sentiment can fluctuate wildly too. How often do we see a stock priced at $45 now and then $32 six months later and that does not mean there was a sudden 30 percent hole cut out of the company.
Years ago I interviewed the head of a public corporation who said his master's thesis was on whether or not dividend yield influences stock investing decisions. His thesis concluded that overall it did not. Of course, that applies to the macro and not the mico.
On a given day I might buy into RDS.B because I want higher yield and others will pile into XOM confident that the latter will give them a higher total return over the time frame they have in mind - which for most traders seems to be a few days.
long: CVX, MUR, RDS.B
Relative to comments that Exxon has not invested in other sources for the production of energy, it is false. The company is unjustly criticized because it does not jump on the inefficienct alternate sources just because the politicians, enviromentalists, bureaucrats with selfserving agendas advocate them.
You might keep in mind the fable of 'the tortoise and the hare'.
merger with Chevron. In addition to Gulf, Chevron has acquired Unocal. I still own Chevron and have been accumulating. I share Fitzman's puzzlement over the neglect of natural gas by both the government and oil companies. Our continued dependence on imported oil makes us vulnerable to economic and petroleum blackmail. It also contributes to the destruction of our currency. The age of oil may end some day and we need to begin the deliberate steps to prepare for this. Given the enormous volume of liquid transportation fuels in a modern economy, I don't believe people in general, and environmentalists, realize the the gigantic scope of alternative liquid fuels. The same comment applies to using electricity for transportation.
swaps: yup, yield is dividend/price, and obviously the stock price is a component. however, just imagine how much more skimpy exxon's current skimpy dividend was when XOM was at $90/share!
yet another reason for XOM to increase the dividend. if the price does happen to go up this year (instead of going down as it has been), the dividend yield will keep shrinking and investors will look at BP or CVX or COP and say, why not?
Michael*WD: i never stated that exxon didn't invest in alternative energy and i never complained about the long term return of XOM stock. what i did say is i wish they'd knock off the algae research and biofuels activity and simple line up behind a proven technology and resource and support natural gas transportation. with respect your dividend increase comment, what i asked in the article was when did they last **significantly** increase the dividend? i cannot remember. thus, the shareholders are stuck with a category low dividend yield, as the chart clearly shows. in the old days, when an oil company had huge profits like XOM in 2008, they would declare a "special" dividend and reward shareholders for their success. nowadays, we not only don't get the "special" dividend, but we get a paltry increase in the amount so they can say "we've increased the dividend for every year since alaska became state" or some such boast. like biofuels and algae, that is simply a distraction from what folks should be focusing on: it's a miserly dividend.
mws: thanks for the support! i think the chart says it all.
TexasTea: well, i certainly didn't suggest XOM go out on a spending spree for questionable assets and incurring debt. what i did suggest is;
1) the dividend yield of the stock is worst in class by a longshot
2) they should divert some of the cash going to stock buybacks and instead reward shareholders with a higher dividend.
Last year there was a lot of Talk about a "Wind Fall Profits" Tax. Chavez did it, Carter did it, I expect Obama to do the Same. American Companies are at risk.
I thought this Article was supposed to be about Dividends. I was wrong. But instead of digressing, lets look at reality. The American Companys Know they will get Reamed. The Only way they have of getting Support from the Obama Administration is by Focusing on the Areas that Obama Supports. The Push into Biofuels, your so called "Distractions" are where they have to go. This is the direction they are being Pushed into. Its not a Matter of Choice for them. They will get a Much better return on it in the long run as they produce more of it. And It won't be subject to Surcharges.
I would Hazzard that "Wind Fall profits Taxes" are on the Minds of the Other Developed Nations as well as they seek Revenue sources.
I have XOM and CVX as my main US holdings, but I agree having several foreign oil companies in your portfolio as a hedge against a falling USD and future windfall taxes.
In Canada, COSWF and ERF are great income picks that pay good dividends as well as ECA for growth as natural gas picks up.
In Europe I think BP, TOT, RDS and STO are all good bets.
PTR (China) and PBR (Brazil) are probably safe bets and have great potential.
The only region I would not touch is Russia. You probably know all too well about the forced renegotiations on BP with its TNK venture, I would avoid Gazprom and Lukoil like the plague. I can see Putin and gang screw foreign investors again once oil and gas prices pick up.
Right now, Exxon only provides one of those three - stability and that is by virtue of its strong balance sheet and huge presence in the market. However, it's hard to expect much growth from a company that is so dominant in its market and has one of the largest market cap in the world. At the same time with a measly dividend yield of around 2.4%, investors are hardly getting any return for their investment in real terms. Hence, the need to provide some sort of a "carrot" to attract investors by means of a higher dividend.
For more analysis, check out my blog: youngandinvested.com
When the "ship hit the sand" (the Exxon Valdez disaster in Alaska), I remember Exxon Executives appearing before congress and crying that if they were forced to clean up the mess and pay fines, it would bankrupt Exxon, so the fines were reduced and some areas of the Alaskan coast are still polluted from the spill. Shortly after that, Exxon was the first company to make a billion dollar profit in a single quarter, despite being forced to clean up the mess somewhat. Last year, when gasoline was $5 and more per gallon, Exxon announced that it made TEN BILLION in a quarter.
A couple of years ago, Exxon paid its retiring chairman a $450 MILLION RETIREMENT BONUS. I could have been in a COMA as Exxon's CEO and done as well for the company. I'm glad I didn't own Exxon at the time (and still don't) or I would have been really pis...d as a shareholder that the board was being so generous with MY MONEY. Ten years ago, GM had the technology to go to make with a hydrogen powered car. The only obstacle was getting Exxon and a couple of other Major national oil companies to agree to put hydrogen pumps at their retail stations, which have a virtual monopoly of the retail gasoline business. Exxon's answer was an enthusiastic HELL NO. They had two oil men doing their bidding in the White House and why should they help any prospective competing technology, especially one where ordinary citizens could make hydrogen out of a very cheap raw material - water.!
The oil companies also bought up an entire fleet of electric vehicles in California and crushed them. This is FACT, not an urban legend.
To me, Big Oil companies represent the essence of what corruption is all about. The assertion that there has been no price fixing in gasoline is absurd. Fadel hit the nail on the head when he noted that oil prices had a huge spike because of a supposed shortage of refining capacity, then later on supposedly by the threat of damage to offshore rigs by a hurricane, days before the hurricane was even in the gulf of Mexico. Supposedly at the same time, we weren't able to refine all the oil that was in stock, yet the threat of damage to rigs that were producing oil could not even be refined.
In 1975, President Ford signed legislation providing for CAFE fuel efficiency standards as a means of reducing dependency on foreign oil, with a goal of cars averaging 45 mpg by 1996, which was technologically attainable. Fellow republican Reagan gutted the fuel efficiency program citing excessive regulation. The standards were attainable. European cars now average about 45 mpg. Reagan's short sighted mentality has repeatedly bitten the US in the ass, as we have become more and more dependent on foreign oil, which is produced by American companies such as Exxon and especially Halliburton in partnership with mideast Oil Sheiks, who are often not friends of the USA. In past wars, those who consorted with enemies were executed as traitors. Now they get $450 million "golden parachutes" as a reward for damaging the economic fabric of the US.
I live in a city of 700,000 where one convenience store chain controls gasoline prices. There isn't 2 cents variation in prices anywhere in a 20 mile radius, because all the independent retailers have been forced out of business. There are two refineries here. 80 miles West is a city of about 1 million with no refineries. I always buy gas there every time I go there on business, because gas is consistantly 10 to 20 cents less at the lower priced stations than it is in my home city. The difference? There are still a lot of independent retailers in that market who don't play the price fixing game. I don't plan on ever buying Exxon again. I just bought Clean Energy (T Boone Pickens brainchild) about 3 weeks ago, which I believe will far outperform Exxon in the future. Clean Energy is in the business of Wind, Compressed Natural Gas, and also owns water rights to a huge aquifer which in the future may be a primary supply of water to Fort Worth and/ or San Antonio, TX. Their stock has risen in the last 6 months from about $6 per share to about $15, and they aren't in bed with the Bin Laden family.
Win, Win without having to drill.
The new holding of 16,000 BP would make for a better Capital gains position for future tax years and the 16,000 of BP would generate $53,760 in dividend income. Yes I realize that it would take 8 years to make up the difference between the sale's gross and net proceeds, but given the nature and purpose of the investment even if I didn't live long enough for the dividends to make up the difference the trust that the BP shares went into upon my death would more than make up for it over the life of the trust.
The bottom line for me is that if I am sitting on a million dollar capital gain but I need the dvidend income I'd make the jump in a heartbeat and take the tax beating. If I was keeping all the stock in trust then for me it would depend on which company I thought was better positioned for the future and would be more likely to hold it's capital value.
My ACORN comment was based on the seemingly never ending rant from the left that things aren't fair.....and it's parallel to your premise that XOM should raise their dividend because they aren't in line with other oil company dividends. The Board of Directors is responsible for those decisions and if enough shareholders who hold voting stock want a dividend increase then I have no doubt it will happen. I'm guessing the Board of XOM isn't seeing that kind of pressure.
On Oct 10 04:07 PM Michael Fitzsimmons wrote:
> swiftcreek1: i don't understand, and don't see the relevance of,
> your acorn comment. you say i have the choice to buy XOM or something.
> that is obviously true. the point you are missing, and what is not
> fair (imho), are the shareholders that have held exxon or mobil or
> XOM for decades and find themselves sitting on very large capital
> gains, preventing them from selling, while accepting the absolute
> lowest yielding stock in their peer group (by a longshot, not even
> close). nothing you wrote changes my mind on this matter. the table
> above speaks for itself, and XOM is obviously way out of whack on
> its dividend. wrt to the comment you cut and pasted, i already responded
> to that in my last post.
>
"Cnooc challenging Exxon over Ghana oil""
www.marketwatch.com/st...
This is exactly why it is good that Exxon is hoarding cash. The Chinese have trillions in USD. Only totally solvent companies with cash surpluses like XOM or CVX can challenge the Chinese majors like PTR and CNOOC and guarnatee the US access to what-ever little oil is left in the world.
If you're buying stocks on the basis of the yield, you might want to re-consider buying on the basis of P-E ratio.
It doesn't hurt a bit that they have the lowest cost structure of the majors. They didn't go fishing with the rest of the industry, when oil prices approached $150/bbl.
Yes, the company's executives are overpaid. That's true of almost all large American companies. XOM didn't create that problem.
As for peak oil, all I can do is relate my experience. When I graduated in 1975, I heard about how we only had 30 years of oil left. Now 30+ years later, we STILL have 30 years of oil left. A bunch of really talented and well paid geologists have gone out there and found more. And will continue to do so during the rest of my lifetime and yours too.
Regarding investing in Russia, I think that Shell may have learned their lesson the hard way at Sakhalin Island. The Russians don't feel a need to honor their contracts any more than Chavez does in Venezuela.
You also didn't mention that the governments where major foreign oil companies are located withhold 20% in taxes on dividends. If you yearn for a meloncholy and futile experience, try to get back that 20% that is withheld.
Finally, I can remember, and I'm not over 100 years old, when the U.S. Government tax on "unearned income," such as corporate
dividends, was 70%! Do you think the Obamistas haven't thought of that, which, after the Death Tax is the perfect envy tax.
Why not just make ALL dividends and interest tax exempt?
Burton A. Johnson, MD,JD
President
Burton A. Johnson Portfolio Management, Inc.
I do agree with you that the Foreign Majors are your best bet for owning black gold, for the following two reasons:
1.) US Oil Majors pay skimpy dividends (the point of this article)
2.) The coming Obama Taxes on big oil will mostly affect domestic producers. PBR STO BP, etc are out of the long reach of the taxman (your point)
On Oct 10 10:04 AM yellowhoard wrote:
> When the big inflation arrives, and it will, and gasoline shoots
> up to $10 per gallon, or more, Congress and the Obama administration
> will villify the oil companies and farmers.
> They will whip the mainstream media into a frenzy over the "windfall"
> profits being made by natural resource producers and it will work
> because people will be confused and hungry.
> For this reason, I own no US resource companies. PBR and STO are
> my best bets for the next ten years.