Exxon Mobil: Dividend Aristocrat

Exxon Mobil Corporation (XOM) engages in the exploration, production, transportation, and sale of crude oil and natural gas. It also engages in the manufacture of petroleum products, and transportation and sale of crude oil, natural gas, and petroleum products.

The company is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 25 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 14.30% to its shareholders.

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At the same time, the company has managed to deliver an impressive 21% average annual increase in its EPS since 1998, both through organic growth and share buybacks. 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 financials.

The ROE has increased from 15% in the late 1990s to over 33% currently.

XOM has continuously paid dividends without interruption or dividend cuts since 1911. Annual dividend payments have increased over the past 10 years by an average of 5.4% annually, which is significantly lower than the growth in EPS. A 5% growth in dividends translates into the dividend payment doubling almost every 13 years. If we look at historical data, going as far back as 1963, XOM has actually managed to double its dividend payment every eleven years on average.

If we invested $100,000 in XOM on December 31, 1997, we would have bought 3269 shares (adjusted for two 2:1 stock split in July 2001). In February 1998, your quarterly dividend income would have been $670. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1419 by November 2007. For a period of 10 years, your quarterly dividend income would have increased by 71%. If you reinvested it though, your quarterly dividend income would have increased by 112%.

The dividend payout has declined from a high of 73% in 1999 to a low of 19% by 2007. 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.

Despite the low DPR and low P/E ratio, I would need a dividend yield of at least 2% to initiate a position in XOM. 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 remain high.

Disclosure: I do not own shares of XOM.

Comments

[The Fitzman]

Exxon Mobil pays the skimpiest dividend of the oil majors:
XOM: 1.5%
CVX: 2.5%
COP: 2.2%
BP: 4.7%
TOT: 3.8%

Yet, at the same time the XOM dividend yield is the lowest in class, their cash flow and profits are best in class. This is a failure of management to reward shareholders. Instead of increasing the dividend to be in-line with their peers, XOM is content in buying back shares and hoarding their profits for management compensation. This may be the main reason that XOM's stock price appreciation has not kept pace with the huge increase we are experiencing in the price of oil.

[Kaiser]

the fitzman is a lot brighter then this writer !

[AmesTiedeman]

The dividend is skimpy, yes. However, this piece is a text book example of why buying good companies that pay dividends and then reinvesting those dividends make all the sense in the world. Companies like JNJ, PG and others like DOW should be considered for a 25 or 30 year plan.

[Lazy Al]

Picture the political fallout from this headline: “EXXON MOBIL INCREASES DIVIDEND BY TWO BILLION DOLLARS!” The Dems would have a field day with that one. I think XOM is smart to use most of their outsized profits for share repurchases, at least until the election is over.

They will be moderately increasing their dividend (probably $0.16-$0.20 per share) in a few weeks.

[sopocistudio]

User,

I have to throw my lot in with the Fitzman. XOM's preference for buybacks over dividend increases isn't something that is real recent, as if their goal was to dodge poltical "flack". Btw, same reason JNJ is not in my portfolio..."show me the money!".

jan

[sopocistudio]

Oops..meant to say 3M, not JNJ.

jan

[Lazy Al]

Jan,

XOM has “showed me the money”, in the form of a 100% capital gain over the past three years.
Dividends are nice, but they’re not the only benchmark to gauge successful companies.

[xom investor]

One might argue that the xom execs receive too much pay, but it is not related to the dividends. They buy back about $28 billion of stock a year, and that is helping to drive share prices up. Dividends increaee every year, and when the oil price bubble finally is punctured, the dividends will not be at risk. A long term look is the key to holding xom stock.

[Kofi Bofah]

Quarterly Dividend increased from .35 to .40 recently. XOM needs to reduce these share buybacks and up the dividend payout. What is the point of purchasing stock on the open market that is already fairly valued? XOM stock is not exactly a bargain; and will sputter out around $90 - $100.

XOM used to consistently yield 2.5% in the late nineties / early 00's. I was looking for a much larger hike this time...

[Kofi Bofah]

Somebody posted that XOM has not kept pace with the price of oil.

Well, Exxon is an integrated oil company. The major earns money from upstream (production), refining, downstream (marketing of finished petroleum products, and chemicals.

Exxon also purchases oil on the open market.

Although the price of oil has spiked, gasoline and finished petro products have not advanced as spectacularly. 'Crack' spreads; or refining margins have been squeezed - eating into profits. Hence, the reason that the integrated oil company has not kept pace with the moves of crude oil.

If you are looking for an investment that moves with crude; just buy crude futures; or an E&P company such as Apache.