Exxon Mobil Corporation (NYSE:XOM) still stands to benefit from a reopening economy, as well as a defense against rising oil prices due to inflation. Exxon also has a US$3.52 dividend per share, which amounts to a 5.8% yield. Today, we will evaluate the major fundamental aspects of the stock, as well as its dividend viability.
The key fundamentals, outline a stable and recovering company:
- Earnings are expected to turn positive in 2022 with US$21.2b forecasted by 12 analysts
- An annual revenue growth of 2.1% is also expected, targeting US$308.7b in revenues by 2022 year-end
- Even though earnings were negative, Exxon is already free cash flow positive with US$23.4b in FCF
- Energy prices are among the leading factors in inflation, and have risen by 33.5% from a year ago, with oil rising by 48.3%. Exxon is well positioned to pass the costs of inflation downstream
- The black gold company seems to be currently fairly priced based on our model. It is trading within 10% of the intrinsic value of US$64.7 per share
- Debt to capital is at 18.1% (Debt to Equity @33.8%). The current US$1b gross interest expenses can be easily covered by operating income even in the event of a higher rise in rates, which means that the stock has little debt risk.
Being an oil stock, it is somewhat connected to the commodity price, which gives investors a good hedge against rising oil prices - However, the excess returns are reflected in the dividend, which is what gives us a real return on our investment in the case of Exxon.
Next, we will analyze both the attractiveness and viability of their dividends.
Exxon Mobil has a 5.8% dividend yield and a payment history of over ten years. This also puts the yield above the industry average of 4.9%.
With a 5.8% yield, a stable stock price, and if you invested close to the current price - it would take 17.2 years for you to double your investment.
Below we can see the relationship between the yield, dividend per share, as well as the yearly earnings per share. The chart gives us a history of stable and rising dividends.
Considering the payout ratio, the company paid out 64% of its free cash flow, which means that the stock has enough cash inflows to meet dividend commitments as well as some left over for re-investment into the business.
2020 and 2021 have been quite volatile for the industry, however analysts are projecting a resurgence, and healthy growth for the stock. It has also been placed on a list of 10 potential stocks from Bank of America, with an implied 17% potential price upside.
To summarize, shareholders should always check that Exxon Mobil's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend.
Exxon can be seen as a good stock from multiple aspects including: a good dividend yield, stable and rising fundamentals, a shield against rising energy prices in the future, and trading around fair value with a potential upside.
The future landscape is quickly changing and equities will be faced both with the pressures of tapering and inflation. It seems that Exxon is well positioned to be profitable in both of these environments.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.