Exxon Mobil: 'Stingy And Good For Nothing?'

Mar. 8.12 | About: Exxon Mobil (XOM)

A few months back, I began writing a series of articles about some of my favorite dividend-paying stocks. Nothing fancy, you know, I just put my pad to the paper, informing my readers about stocks I actually own in my real life portfolio, telling readers why I feel they are some of the greatest investments I've found. Many of the stocks I highlighted were high quality and well known and stocks you've likely heard about -- companies that pay sustainable dividends with increasing EPS that will likely be around for many decades to come. If you've read any of my past articles, you might have noticed I write about Exxon Mobil (NYSE:XOM) quite a bit. XOM is one of my steady stalwarts, frequently written about in many of my more popular articles and, ironically, usually the most scrutinized of my picks in the comment section. Allow me to explain.

You see, Exxon Mobil is one of those stocks most investors either love or they simply just hate. Either they complain that the dividend yield isn't worthwhile or they point out XOM has had a record of paying dividends since 1970 and has posted a return of over 3,000% over the last four decades. Trust me, it's tough to find an investor who just says, "XOM? Yeah, I don't really have an opinion on the stock." Really, these people just don't exist.

And you know what? As a faithful XOM shareholder, you skeptics out there from time to time really have me second guessing my ability to pick a good stock. The reality is I hear your side of the argument loud and clear. Here's why:

Exxon Mobil's competition is fierce!

With companies like ConocoPhillips (NYSE:COP), Chevron (NYSE:CVX) and BP (NYSE:BP), dishing out dividend yields of 3.4%, 2.96% and 4.1% respectively, how can Exxon Mobil's 2.2% even come close? Sure Exxon Mobil has revenue north of $433 billion each year, $12.6 billion in cash on hand, a forward P/E ratio of 9.5 and a PEG ratio of 1.2. Yeah it may be considered the "most reliable and safe oil company in the industry" and has been diversifying its business over the last few years, buying up companies like XTO Energy over the recent past. Yes, XOM has allocated a large amount of its cash over the last decade to share buybacks and, by and large, looking back actually repurchased shares of stock when the share price was relatively attractive. But what's with that 2.2% yield anyway?

But herein lies why I love XOM

The reality is Exxon Mobil is one of those companies that competitors fear and investors love for increasing and consistent revenue growth, rising dividends, generous share buybacks, an admirable moat, clean balance sheet, reasonable debt-to-equity ratio and consistent return on capital. When I think of Exxon Mobil, I think of a company that allows me to sleep well at night knowing it has a bright future with a generous share repurchase plan and a solid history of paying and raising dividends for its loyal shareholders. Besides, in 1970 XOM paid out a $0.03 per share dividend. 41 years later XOM has raised its dividend to $0.47 per share and we should see an increase in its dividend in just a few months with a scheduled increase, all the while XOM has been purchasing up shares of its stock and posting incredible, jaw-dropping returns on capital along the way. Sure there may be companies out there with higher dividend yields, but how many can claim the type of success Exxon Mobil has been able to achieve?

Just to be safe, I'd like to make it known that I have no idea what the future has in store for XOM and its competitors. There are certainly risks investing in these types of companies -- or any company for that matter. Perhaps the market may pull back in the near future and will leave no stock unscathed. Maybe we'll see strong rallies as our economy recovers gracefully over the next decade. No one really knows. However, I'm completely happy owning XOM knowing I have my hard-earned cash invested in a reputable company with a bright future. And if you care to look at my disclosures below, you'll see I also own ConocoPhillips and BP so it's clear I feel there are other great oil stocks out there as well with admirable dividend policies.

If you feel I have it all wrong or there are better opportunities out there, please feel free to let me know in the comments section. Until you change my mind about things, I'll be watching XOM's share price closely, looking for pullbacks so I can add to my holdings on dips below $80 per share. Please tell me I'm not the only one praying for a pullback.

Disclosure: I am long XOM, COP, BP.