Exxon Mobil: 9 Years Of 'Nothing?'

| About: Exxon Mobil (XOM)
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Summary

Exxon Mobil’s share price is now roughly where it was nine years ago.

This fact often gets calls of “dead money” or “gone nowhere.”.

This article looks at the situation from a more realistic angle to see if it’s as bad as many claim.

At the end of 2007, shares of Exxon Mobil (NYSE:XOM) were trading hands around $94. As I write this today, the number is closer to $90.50. This is the sort of thing that gets calls of "dead money" or people saying that shares have "gone nowhere." And indeed, from first glance - capital depreciation over a fairly lengthy time period - you could make this case. It certainly doesn't look "pretty" on a stock chart.

Yet this single idea can often miss some bigger picture items. For one thing, a simple stock chart usually does not include dividends. This won't make a massive difference, but it does tip the scales from negative to positive.

Here's what Exxon's per share dividend has been over the last nine years:

2008 = $1.55

2009 = $1.66

2010 = $1.74

2011 = $1.85

2012 = $2.18

2013 = $2.46

2014 = $2.70

2015 = $2.88

2016 = $2.98

In total, an investor would have collected $20 in per share dividends. So you go from a capital loss on one side (if you elected to sell) to a total gain with dividends included. Investors would have seen returns on the magnitude of 1.8% per annum with the cash payments included. Granted this is nothing spectacular, but it is positive nonetheless. Moreover, on say a $10,000 starting investment, that's $2,100 or so that you could have spent as you pleased or elected to reallocate.

If you were to reinvest quarterly, your returns improve slightly from 1.8% up to 2.2% per year. The real benefit, in my view, would have been the increase in income generation.

Back at the end of 2007, a $10,000 starting investment would have purchased nearly 107 shares of Exxon - in turn paying out $165 or so in dividends for the coming year. (Which, by the way, highlights why the reinvestment program did not add a great deal to your total return: the starting yield was below 1.7%.) After nine years of reinvesting you could have purchased an additional 28 shares, bringing your total share count up to 135 or so.

The dividend on its own grew from $1.55 to $2.98 - a 92% total gain or growth of about 8.5% per annum using the end of 2008 as your starting points. That's per share. Your total income growth would have been better. Today, you would be looking at 135 shares paying out $0.75 per quarter, or $405 on an annual basis. As compared to the $165 starting amount back in 2008, this represents a total gain of 145% or an overall growth rate of about 11.9% per annum.

If you were living off - or were planning to live off - Exxon Mobil income, that's a meaningful growth rate in the last decade.

Finally, and this one is the big one, people like to give all these facts about Exxon or another security being "dead money" for X number years. The stats are usually correct, but the reality needs checking.

Each circumstance looks at a lump sum investment over a set time period. A few may proceed this way: investing just once (at the peak no less) and then sitting on your hands to see what happens for years. Yet the vast majority of people invest regularly and over a great deal of time. For some this means biweekly or monthly, others quarterly or yearly. Whatever it is, it's very often more frequent than once a decade. As such, the above "dead money" idea may be factual (and not as bad as it seems with dividends included) but I would contend it only tells part of the story.

If you invested at the end of 2007, your return today would have been 1.8% per annum.

By the end of 2008, the share price was down below $80. An investment at this time would have provided 4% annual gains.

By the end of 2009, the share price was down below $70 a share. An investment at this time would have generated 6.7% annual gains. And so the beat goes on.

Investments at the end of 2010 through 2015 would have yielded annualized gains of: 6.3%, 4.1%, 4.1%, -0.8%, 2% and a 20% gain this year. By the way, these aren't spectacular results either. The point is that a regular investment program is going to knock out some of the more extreme "dead money" calls that you often hear.

Nine equal $1,000 investments at the end of the years 2007 through 2015 would have turned a $9,000 nominal investment into a bit over $11,100 or so. In order to replicate that sort of return, you would have needed to find an investment returning an average compound gain of 4.3% per annum.

Once again, this is no great spectacle of performance - Exxon has been a very solid business for decades, and the dividend marches upwards, but the past decade hasn't been an incredible boon to wealth generation. The point is that it hasn't exactly been "dead money" either. It's easy to cherry-pick data points, but when you look at a more realistic investment program, there's often a more reasonable or intermediate middle ground.

This can be helpful to keep in mind whenever you hear that a given investment has been "poor." It could very well be true, but there's a bit more to it than looking at two stock prices. There's a timing factor at play that makes some investments exceptionally more lucrative than others (even with the same security). The Exxon shareholder who bought just once in 2007 may not be pleased. Alternatively, the investor who kept buying (or only bought) in the $60s or $70s may have a different tune.

Disclosure: I am/we are long XOM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.