Exxon Mobil (NYSE: XOM) is one of the highest-yielding stocks among the S&P Dividend Aristocrats. The company has raised its dividend for 36 consecutive years, and has a current dividend yield of 4.15%. Exxon is expected to announce a dividend increase in April. Find out why below…
Exxon Mobil Business Overview and Highlights
Exxon Mobil is a $335 billion business. The company is based out of Texas and it employs 71,000 people. Last year Exxon Mobil pulled in $279 billion in sales and that works out to $3.9 million per employee.
The company runs within the energy sector and maintains a solid credit rating (AA+) from the S&P. This allows Exxon Mobil to issue cheap debt to expand operations and finance other initiatives.
XOM has recently underperformed compared to other oil giants. In 2012 it produced 4.2 million barrels per day, and in 2014 it produced only 4 million barrels per day. The company has since shifted its focus to aggressive production growth. The new strategy seems to be working because XOM posted strong results in its 4Q earnings release. As a result, XOM is expected to increase its dividend in April.
Exxon Mobil Dividend History 10-Years
The company paid investors $1.66 per share a decade ago. Over the last 10 years, the dividend has climbed to $3.23. That’s a 95% increase and you can see the annual changes below…
The compound annual growth is 6.9% over 10 years… but over the last year, the dividend climbed 5.6%. The slowdown in dividend growth isn’t a great sign. Although, Exxon Mobil still might be a good income investment. Let’s take a look at the yield…
Current Dividend Yield vs. 10-Year Average
Exxon Mobil’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 4.15% and that’s above the 10-year average of 3.56%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Exxon Mobil earns, it pays investors $0.60.
The payout ratio is a useful indicator of dividend safety… but accountants manipulate net income. They adjust for non-cash items such as goodwill. A better metric is free cash flow.
Here’s the Exxon Mobil dividend payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the last reported year shows a payout ratio of 83.9%.
Despite the payout ratio volatility, Exxon’s dividend is safe for now, and the expected dividend increase is a good sign.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free dividend reinvestment calculator.
Good investing,
Robert
