HomeMost PopularExxon Mobil: Uncovering the Dividend Zombie's Potential

Exxon Mobil: Uncovering the Dividend Zombie’s Potential

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Introduction

As Halloween approaches, the excitement of dressing up and indulging in candy isnโ€™t just for kids. Adults also enjoy this festive occasion. In the spirit of Halloween, letโ€™s explore Exxon Mobil, commonly referred to as the dividend zombie (NYSE:XOM).

The term โ€œdividend zombieโ€ is not often heard, usually overshadowed by dividend aristocrats and kings. However, it represents companies that have consistently paid dividends for over a century. Exxon Mobil is one such company, known for its financial stability and uninterrupted dividends. While their dividend record is rarely discussed in relation to dividend stocks, it is worth considering why Exxon Mobil deserves a spot in your investment portfolio.

Dividend History and Earnings Performance

Exxon Mobil, tracing its roots back to the 1800s as Standard Oil of New Jersey, has a long and storied history. Despite being ordered to split by the Supreme Court in 1911 due to antitrust laws, the company has persevered and solidified its position as a dividend payer. Recognizing and praising its 141-year track record of dividend payments is important.

In the most recent Q3 earnings report, Exxon Mobil missed expectations on both the top and bottom lines. Surprisingly, the companyโ€™s share price rose despite the miss. The revenue of $90.76 billion was $1.81 billion below estimates, but still represented a 9.5% increase from the previous quarter. The decrease in revenue was mainly attributed to a 60% drop in natural gas realizations and a 14% decrease in crude realizations.

Nonetheless, Exxon Mobilโ€™s performance over the years is noteworthy. Although the companyโ€™s earnings fell by more than half compared to the previous year, they are still impressive considering 2022 was a record-breaking year. Despite some setbacks, Exxon Mobilโ€™s financials demonstrate resilience and the ability to adapt to challenges.

Growing Shareholder Returns

Exxon Mobil has consistently rewarded its shareholders with dividend increases. In recent years, the company has raised its dividend every year except for 2020, which was heavily impacted by the pandemic. While peers such as BP (BP) and Equinor ASA (EQNR) were forced to cut their dividends, Exxon Mobil maintained its commitment to shareholders. Additionally, the company has engaged in significant share buybacks, reducing the number of outstanding shares on the market.

Balance Sheet Health and Future Growth Outlook

Exxon Mobil has focused on strengthening its balance sheet and optimizing its financial position. The company has succeeded in decreasing its net debt to capital ratio and increasing its cash and cash equivalents. Through buybacks and dividend increases, while simultaneously reducing debt, Exxon Mobil demonstrates sound financial management in the current macroeconomic environment.

Looking forward, Exxon Mobil plans to continue its cost-saving strategies, expecting $9 billion in savings for the year. The company aims to capture efficiencies and reduce emissions, positioning itself as a leader in the energy transition. Furthermore, its recent acquisition of Denbury is set to enhance Exxon Mobilโ€™s low-carbon leadership across the Gulf Coast value chains.

Valuation and Risks

Exxon Mobilโ€™s recent price decline offers a favorable buying opportunity and a margin of safety for investors. Although its current dividend yield is slightly below the 5-year average, indicating a potential overvaluation, long-term investors can benefit from dollar-cost averaging at a more attractive entry point. The companyโ€™s P/E ratio of 8.5x is lower than the sector median and peer average.

One of the key risks for Exxon Mobil is the downward pressure on petroleum and natural gas prices due to climate change and the rise of greener alternatives. However, Exxon Mobil is actively addressing this risk through acquisitions and strategic business enhancements. In addition, the companyโ€™s strong balance sheet and focus on low-carbon solutions position it well for long-term success.

Investor Takeaway

Although Exxon Mobil missed expectations in its recent earnings report, it remains a strong investment prospect. The companyโ€™s long history of dividend payments, commitment to shareholder returns, and strategic focus on low-carbon growth opportunities make it an attractive option for investors. With a sound financial position and a mindset geared towards the future, Exxon Mobil has the potential to navigate through evolving market conditions and generate favorable returns for shareholders.

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