Friday, August 16, 2013

Stock Analysis of Exxon Mobil

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 champion has paid dividends since 1911 and increased distributions on its common stock for 31 years in a row.


The company’s last dividend increase was in April 2013 when the Board of Directors approved a 10.50% increase to 63 cents/share. The company’s largest competitors include Chevron (CVX), British Petroleum (BP) and Royal Dutch (RDS.B). In late 2012, I replaced Exxon Mobil with a position in ConocoPhillips (COP).

Over the past decade this dividend growth stock has delivered an annualized total return of 12.20% to its shareholders.


The company has managed to an impressive increase in annual EPS growth since 2003. Earnings per share have risen by 13.30% per year. Analysts expect Exxon Mobil to earn $8.02 per share in 2013 and $8.21 per share in 2014. In comparison Exxon Mobil earned $9.70/share in 2012.

The return on equity has closely followed the rise and fall in oil and natural gas prices. It rose between 2003 and 2008, 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 9% per year over the past decade, which is lower than to the growth in EPS.

A 9% growth in distributions translates into the dividend payment doubling every eight 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 ten years on average.

The dividend payout ratio has remained below 50% for the majority of the past decade. Up until 2011, Exxon Mobil had a stingy dividend payout, where it focused its excess cash flows towards stock buybacks. Starting in 2012 however, the company seems to be changing course, and is increasing distributions much faster than peers. 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 9.30 times earnings, yields 2.80% and has an adequately covered dividend. In comparison, peer Chevron (CVX) trades at 9.10 times earnings and yields 3.40%. If the amount of attractively valued dividend stocks keeps dwindling, I might initiate a position in Exxon again.

Full Disclosure: Long CVX, COP, RDS/B

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