There's not many things in this world as big as Big Oil. And anywhere Big Oil is talked about, the names of two companies always enter the conversation. Those companies are ExxonMobil Corporation XOM and Chevron Corporation CVX. They're also two names listed on the Dividend Aristocrat List because of their consistency in delivering an increasing flow of dividends annually to its shareholders. It's those dividends and being included on that list of Dividend Aristocrats that make these companies attractive to me. But simply being on the Dividend Aristocrat List is not enough. I just won't make any decisions on whether to accumulate any stock in any company without looking at that company's revenues, earnings, dividends and its stock chart first.
ExxonMobil Corporation engages in the exploration and production of crude oil and natural gas, and the manufacture of petroleum products. The company also transports and sells crude oil, natural gas, and petroleum products. It has approximately 37,228 gross and 31,264 net operated wells. The company manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene, polypropylene plastics, and specialty products. It also has interests in electric power generation facilities. The company has a strategic cooperation agreement with Rosneft to jointly participate in exploration and development activities in Russia, the United States, and other parts of the world. It operates in the United States, Canada, South America, Europe, Africa, Asia, and Australia/Oceania. ExxonMobil Corporation today is a result of a merger between the Exxon Corporation and the Mobil Corporation effective December 1, 1999 and a subsequent merger with XTO Corporation on June 25, 2010.
Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and processing, transportation, storage, and marketing of natural gas, as well as holding interest in a gas-to-liquids project. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing commodity petrochemicals and fuel and lubricant additives, as well as plastics for industrial uses. The company is also involved in coal and molybdenum mining operations; cash management and debt financing activities; insurance operations; real estate activities; and energy services, and alternative fuels and technology businesses, as well as manages interests in 11 power assets with a total operating capacity of approximately 2,200 megawatts. Chevron Corporation today is a result of a merger with Texaco Inc effective October 9, 2001, and a merger with Unocal Corporation effective August 10, 2005.
Revenues for these two companies increased at a respectful pace during the years 2009 thru 2011 but as the world economy slowed so did their revenues. Based on this information revenues for both ExxonMobil and Chevron slowed in 2012. Estimates also show that revenue will not have recovered in 2014 from this revenue shortfall in 2012.
|ExxonMobil Corp||Revenues (Billions)||Chevron Corp|
Earnings for Exxon Mobil Corp during the period from 2009 to 2012 increased at an annual rate of growth of 34.17%. While this is impressive, earnings increased at the much slower pace of 15.20% from 2011 to 2012. Earnings for Chevron Corp during the period from 2009 to 2012 increased at an annual rate of growth of 36.05% but actually declined slightly from 2001 to 2012. Based on estimates for 2013 it doesn't appear that earnings are improving for this year either and may actually be on a decline. This is not good news for shareholders.
|ExxonMobil Corp||Earnings||Chevron Corp|
|$5.46||2013 (9 Months)||$8.52|
Dividends, Dividend Growth Rates, and Payout Ratios
Dividends, however, have continued to climb during this same period but at a much slower rate than the increases in earnings. While earnings for these companies were growing in the range of approximately 34-36%, dividends were only growing in the range of 9-12%. As a result of this differential, the payout ratio for ExxonMobil has declined from 41.71% in 2009 to 22.47% in 2012 and for Chevron from 50.76% in 2009 to 26.35% in 2012. This would normally be great news since it would lead the average investor to believe that earnings were improving faster than dividends and therefore dividend increases would eventually follow as the payout ratio is driven toward zero. But knowing that future earnings were not expected to increase in the future as fast as they have in the past, it would be expected that initially the payout ratio would increase again and put pressure on both ExxonMobil and Chevron to significantly decrease the rate of dividend growth. This also would not be good news for shareholders.
|ExxonMobil Corp||Dividends||Chevron Corp|
|ExxonMobil Corp||Growth Rate||Chevron Corp|
|ExxonMobil Corp||Payout Ratio||Chevron Corp|
At the end of 2013 ExxonMobil had a dividend yield of 2.43% which was basically unchanged from 2010. The dividend for Chevron had slightly decreased from 3.42% to 3.12% from 2010 to 2013. Both of these rates are excellent and approximate the threshold of 2.5% I expect from any investment I consider buying into. In fact a small pullback in the price of Exxon Mobil to $98.40 would increase the yield on the stock to 2.5% and is well within the variability or Average True Range of the stock.
|ExxonMobil Corp||Year||Chevron Corp|
|2.43% ($101.20)||2013||3.12% ($124.91)|
|2.47% ($70.50)||2010||3.42% ($83.00)|
Stock Price Growth Rates
I've also calculated the three year stock price growth rate for ExxonMobil to be 12.66% and for Chevron to be 14.44%. However this growth rate is calculated based upon the closing price of the stock as of 31 December and the approximate closing price on 31 December 2010. Calculations made on prices that can vary each and every trading day is a dangerous calculation to use to make trading decisions but it can be quite useful for growth rate comparison purposes.
|ExxonMobil Corp||Years||Chevron Corp|
|12.66%||3 Year Growth Rate||14.44%|
The Stock Charts
Below are the three year weekly charts for both ExxonMobil Corporation and Chevron Corporation. These charts include 5 and 10 week moving averages as well as Bollinger Bands. I've also included the RSI, MACD and ADX for supporting confirmation. As always, I use fundamental analysis to filter or screen companies to determine if they meet my criteria for further analysis or investment. I then use technical analysis to determine the appropriate price and/or time to acquire a stock position. In the end, I hope to own the right stock at the right price and then add to that position over time.
Both ExxonMobil and Chevron have had excellent increases in revenues, earnings, and dividends in the past but estimates for the future appear to be either flat or declining. This decline in revenue and earnings will begin to affect the dividend payout ratios and cause them to increase. This increase will eventually restrict both company's ability to further increase dividends in the future.
Declining revenues and earnings will also begin to stagnate the price of the stock as well. Shareholders will begin to realize that any stock appreciation may be a thing of the past, at least for the next few years. They will ultimately begin to sell the stock. Now may be just the right time to exit these stocks and move that money into other more productive investments.