Friday, August 10, 2012

Exxon Mobil Stock Analysis

Exxon Mobil Corporation (XOM) engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products. This dividend aristocrat has paid dividends since 1911 and increased distributions on its common stock for 30 years in a row.

 The company’s last dividend increase was in June 2012 when the Board of Directors approved a 21.30% increase to 57 cents/share. The company’s largest competitors include Chevron (CVX), British Petroleum (BP) and Royal Dutch (RDS.B). Over the past decade this dividend growth stock has delivered an annualized total return of 11.50% to its shareholders.

The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen by 20.10% per year. Analysts expect Exxon Mobil to earn $7.83 per share in 2012 and $8.44 per share in 2013. In comparison Exxon Mobil earned $8.42/share in 2011.
 The return on equity has closely followed the rise and fall in oil and natural gas prices. It rose between 2002 and 2007, and then dipped in 2009, before rebounding strongly. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 7.40% per year over the past decade, which is much lower than to the growth in EPS.
A 7% growth in distributions translates into the dividend payment doubling every ten years. If we look at historical data, going as far back as 1974 we see that Exxon Mobil has actually managed to double its dividend every nine and a half years on average. The dividend payout ratio has remained below 50% for the majority of the past decade. Exxon Mobil has a stingy dividend payout, and instead focuses its excess cash flows towards stock buybacks. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, Exxon Mobil is attractively valued at 9.20 times earnings, yields 2.60% and has an adequately covered dividend. Unfortunately, I find other companies such as Chevron (CVX) better values at the moment, which is why I do not plan on adding to my Exxon position significantly over the next year.

 Full Disclosure: Long CVX, XOM and RDS.B

 Relevant Articles:

-  Six Dividend Aristocrats Increasing Distributions in a turbulent 2012.
-  25 Companies raising distribution in 2012’s busiest week for dividend increases
-  Are Dividend Investors Benefiting from Stock Buybacks?
-  How to invest like a Dividend Billionaire

 This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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