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Buying 4.3%-Yielding Exxon Mobil Is A No-Brainer

Feb. 04, 2019 12:01 AM ETExxon Mobil Corporation (XOM)73 Comments
Achilles Research profile picture
Achilles Research


  • Exxon Mobil released better-than-expected Q4 2018 earnings on Friday.
  • A drop in price realizations expectedly hurt Exxon Mobil's upstream results.
  • Exxon Mobil continues to rake in a mountain of free cash flow.
  • Shares are affordable based on forward earnings.
  • An investment in XOM yields 4.3 percent.

Exxon Mobil (NYSE:XOM) is a screaming "Buy" for investors that seek to build a high-quality investment portfolio and that want to secure steady dividend income. Exxon Mobil pulls in a mountain of free cash flow, and pays shareholders an attractive dividend. Shares are affordable and the energy company will most likely continue to grow its dividend payout going forward. An investment in Exxon Mobil at today's price point yields 4.3 percent.

Fourth-Quarter Update

Exxon Mobil released fourth-quarter earnings on Friday that beat expectations.

The energy company said it pulled in $1.41/share in profits for the fourth quarter compared to $1.97/share a year ago, reflecting a decrease of 28 percent year over year. The analyst consensus, however, was for earnings of $1.08/share, so Exxon Mobil delivered a handsome earnings beat.

Crude oil prices slumped in the fourth quarter due to growing fears over an economic slowdown, which negatively impacted Exxon Mobil's upstream results to the tune of $1.1 billion. Negative price effects were partially offset by production growth. As a result, Exxon Mobil's total upstream profits in the third quarter dropped to $3.3 billion, down from $4.2 billion in the previous quarter.

Source: Exxon Mobil Investor Presentation

While Exxon Mobil's upstream profits declined on the back of weaker price realizations, the company's downstream business produced better results.

Exxon Mobil's downstream earnings were significantly boosted by asset sales and margin improvements in Q4 2018. Total downstream profits, including asset sales, jumped ~65 percent from $1.6 billion in Q3 2018 to $2.7 billion in Q4 2018.

Source: Exxon Mobil

Though lower price realizations hurt Exxon Mobil in the fourth quarter, the energy company nonetheless raked in $3.0 billion in free cash flow. In 2018, Exxon Mobil pulled in a whopping $19.6 billion in FCF, marking a ~37 percent increase over 2017. Taking out $13.8 billion in shareholder distributions (~70 percent of free cash

ChartData by YCharts

ChartData by YCharts

This article was written by

Achilles Research profile picture
I am a dividend investor and look for undervalued investments in the stock market. I identify misunderstood and undervalued equity investments and hold those securities until their price approximates my estimate of intrinsic value. I am a long-term investor only. I am building a $100,000 high-yield income portfolio. I am running this portfolio as an experiment to see if long-term sustainable income can be generated from a diversified pool of high-risk, high-yield securities. I am willing to accept high risk in order to meet my performance goals.

Analyst’s Disclosure: I am/we are long XOM, COP. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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