It Might Not Be A Great Idea To Buy Exxon Mobil Corporation (NYSE:XOM) For Its Next Dividend

Readers hoping to buy Exxon Mobil Corporation (NYSE:XOM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 9th of February in order to receive the dividend, which the company will pay on the 10th of March.

Exxon Mobil's upcoming dividend is US$0.87 a share, following on from the last 12 months, when the company distributed a total of US$3.48 per share to shareholders. Looking at the last 12 months of distributions, Exxon Mobil has a trailing yield of approximately 7.3% on its current stock price of $47.42. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Exxon Mobil

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Exxon Mobil reported a loss last year, so it's not great to see that it has continued paying a dividend. Exxon Mobil paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Exxon Mobil reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Exxon Mobil has delivered 7.1% dividend growth per year on average over the past 10 years.

Get our latest analysis on Exxon Mobil's balance sheet health here.

To Sum It Up

Is Exxon Mobil worth buying for its dividend? These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that in mind though, if the poor dividend characteristics of Exxon Mobil don't faze you, it's worth being mindful of the risks involved with this business. We've identified 3 warning signs with Exxon Mobil (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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. Simply Wall St has no position in any stocks mentioned.
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