How Safe Is ExxonMobil's Dividend?

The energy sector has been under substantial pressure over the past couple of years, but integrated oil giant ExxonMobil (XOM +0.71%) has held up far better than many smaller players that focus more on exploration and production activities. Low oil prices have weighed on Exxon's profits, but the behemoth has continued to work on existing projects as well as looking to take advantage of weaker companies in the industry to grab up lucrative assets on the cheap. Nevertheless, some investors wonder if a long period of relatively low oil prices could eventually endanger even ExxonMobil's ability to sustain and grow its dividend.

Let's take a closer look at ExxonMobil to see whether investors can be confident in its ability to keep making boosts to its payout.

Dividend stats on ExxonMobil

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

Dividend yield

ExxonMobil's current dividend yield of 4% is quite high, roughly double what the broader stock market pays overall. Perhaps more importantly, the present yield is at the high end of the range of dividend yields that Exxon has typically had in its recent history. Exxon's yield has spent most of the past decade in a range between 2% and 3%, only climbing into the 3% to 4% area following the collapse of oil prices in 2015. Rapid increases in yield like what Exxon has experienced can be warning signs of potential trouble, although it's not the first time the energy giant has gone through a major cyclical upheaval in its stock.

Image source: ExxonMobil.

Payout ratio

ExxonMobil's current payout ratio exceeds 100%, which is another sign of weakness. Most stocks can't afford to pay more than they earn for any extended period of time, or else they'll have to succumb to dividend cuts and thereby disappoint their shareholders. Exxon has plenty of capacity to weather short-term disruptions to profits, and much of the reason the oil giant's payout ratio has moved higher is that weak oil prices have forced the company to take extraordinary charges that have hurt its bottom line. Historically, Exxon has tended to keep its payout ratio in a very conservative range of 25% to 40%, and that has put it in a position in which it can successfully handle cyclical downturns without endangering its dividend payout.

Dividend growth

ExxonMobil has consistently rewarded its shareholders by giving them rising dividend payments. For 35 straight years, Exxon has raised its dividend each year, including its most recent 3% boost back in May. You can see that during good times, Exxon tends to accelerate its dividend growth, while recent increases have been much smaller because of the financial pressure that the company has been under from energy market headwinds. Overall, though, the rising trend shows Exxon's commitment to sharing its success with its shareholders and the role that dividends play in the oil giant's overall capital allocation strategy.

XOM Dividend data by YCharts. Note: Dip in early 2000s is due to a timing issue and does not indicate a dividend cut.

What's happened with ExxonMobil lately?

ExxonMobil has held its own during the recent energy slump, but that hasn't been quite enough to make investors all that excited about the stock and the company's future. In its most recent earnings report, ExxonMobil said earnings had improved from year-ago levels, but it still cited challenges with production, which was down 9% since the beginning of 2016. In response, ExxonMobil has sought to move forward with new projects, making substantial capital expenditures toward boosting long-term production.

Yet one thing to remember is that ExxonMobil's integrated business gives it some advantages over pure-play upstream exploration and production specialists. By keeping midstream refining and infrastructure assets as well as downstream marketing operations, ExxonMobil can diversify its exposure to the energy industry, finding pockets of strength even when the overall industry is under pressure.

What to expect from ExxonMobil

It will be hard for ExxonMobil to deliver substantial dividend growth as long as oil prices remain subdued. The slump in crude has already lasted far longer than many analysts had expected, and it's possible that sustained oversupply could cause the current low-price environment to persist longer still. In the long run, though, ExxonMobil has demonstrated its ability to weather difficult conditions in the past, and although dividend growth will stay slow pending a full recovery, the current payout should be safe barring any cataclysmic collapse in the energy markets from present levels.