XOM Stock: Is the ExxonMobil Corporation Dividend Safe?
XOM Stock: Solid History of Dividend Payouts
The biggest worry for investors in the oil patch these days is whether energy companies will be able to continue paying dividends as they await a recovery in oil prices. In this challenging environment, there are few companies which you can still trust, and Exxon Mobil Corporation (NYSE:XOM) stock is one of them.
Exxon Mobil Corporation, or ExxonMobil, has a history of providing consistent dividends to its shareholders for the past 34 years. On average, Exxon stock has delivered 6.4% annualized increases in dividend payments to investors during the past three decades. Yielding 3.5%, Exxon stock pays a quarterly dividend of $0.75 per share.
Here, I’ll outline a few factors which make XOM stock a standout among other oil players when it comes to generating cash for future dividend payouts and how the company is riding through this market downturn.
Exxon Stock: Business Diversification
The biggest strength in ExxonMobil’s business model comes from its diversification. Operating one of the world’s largest integrated refiners, marketers of petroleum products, and chemical manufacturers, ExxonMobil’s revenue stream doesn’t rely on crude oil only.
In the company’s recent financial statement, this trend was quite obvious. While upstream profits plunged to $294.0 million in the second quarter of 2016, from $1.7 billion a year ago, earnings from chemical business racked in $1.2 billion, reflecting continued growth from the company’s gas and liquids cracking, as well as growing product demand. Similarly, the downstream segment made $825.0 million despite a margin squeeze from its refining operations when compared to the same quarter a year ago.
XOM Stock: Drastic Cost Cutting
ExxonMobil is working on a very impressive cost-cutting plan to preserve cash in this very tough business environment. The company is pursuing a cost reduction strategy which is helping to maintain its dividend payouts at a time when earnings have declined substantially.
In the most recent quarter, as profit fell 59% to $1.7 billion, ExxonMobil reduced its spending by 38% to $5.16 billion. In the last fiscal year, Exxon saved $11.5 billion in capital and cash operating costs. (Source: “ExxonMobil Earns $1.7 Billion in Second Quarter of 2016,” ExxonMobil Corporation, July 29, 2016.)
ExxonMobil isn’t relying on only the cost-cutting measures to generate cash, as this strategy has been coupled with an accelerated asset sale plan, which is also contributing to the positive cash flow generation for its shareholders. In the last fiscal year, ExxonMobil generated about $2.4 billion through the sale of its assets.
Exon Stock: Growth By Selective Acquisitions
In this dull period in the oil and gas industry, ExxonMobil isn’t sitting idle. If you look at the recent announcements related to its business expansion, it’s clear that the company is still pursuing growth though acquiring assets, which will create long-term value for its shareholders.
In July, for example, ExxonMobil acquired energy assets from InterOil Corporation’s (NYSE:IOC) Papua New Guinea operations for more than $2.5 billion. These assets will expand ExxonMobil’s already successful business in the country and bolster the its strong position in liquefied natural gas. (Source: “ExxonMobil to Acquire InterOil in Transaction Worth More Than $2.5 Billion,” Exxon Mobil Corporation, July 21, 2016.)
During the same month, ExxonMobil announced that it is considering the potential development of a jointly owned petrochemical complex on the U.S. Gulf Coast with Saudi Arabia-based Saudi Basic Industries Corporation (SABIC), the world’s one of the biggest petrochemical companies.
Final Word on Exxon Stock
As ExxonMobil prepares itself to cope with a tough operating environment, there has been a positive development in the oil market recently, which should give XOM stock investors more reason to be satisfied with their investment. The Organization of the Petroleum Exporting Countries (OPEC), the organization of the world’s top oil producing countries, has tentatively agreed for the first time since 2008 to cut oil production. After this news, oil prices have jumped over eight percent, suggesting that oil producers can’t take further pains and that this move may provide some cushion to depressed oil markets.
I believe a brightening oil price outlook and solid business strategy pursued by Exxon Mobile Corporation to preserve cash will provide a stability to its dividend payout. I don’t think this is the right time to get out of this trade. In fact, this may be a good time to get bullish on XOM stock.