The board of Exxon Mobil Corporation (NYSE:XOM) has announced that it will pay a dividend of US$0.87 per share on the 10th of September. This means the annual payment is 6.0% of the current stock price, which is above the average for the industry.
Exxon Mobil Might Find It Hard To Continue The Dividend
If the payments aren't sustainable, a high yield for a few years won't matter that much. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This makes us feel that the dividend will be hard to maintain.
Looking forward, earnings per share could 30.7% over the next year if the trend of the last few years can't be broken. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.
Exxon Mobil Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$1.76 in 2011, and the most recent fiscal year payment was US$3.48. This works out to be a compound annual growth rate (CAGR) of approximately 7.1% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 31% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Exxon Mobil that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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