All bull markets come to an end, and this past decade has been a remarkable one for investors who've escaped largely unscathed from any corrections. While no one knows when the next recession will hit, there's good reason to believe we're closer to the next one than the last one.
Now would be a good time, then, to clad your portfolio in armor to protect it from the inevitable downturn. One of the best ways is through investing in quality, dividend-paying stocks, a key attribute for investors living off their stocks in retirement.
Here's why global energy giant ExxonMobil (XOM 1.08%) may be one of the best stocks for income-loving investors girding themselves for the fall.
On top of a production boom
We don't hear much about oil's impact on the stock market these days. It wasn't that long ago that every tick higher in the price of a barrel caused ripples across most markets. That hasn't really happened much in recent years, and that's thanks to the U.S. becoming the world's largest energy producer over the past decade.
According to the Federal Reserve, the impact from higher oil prices on the U.S. economy "is likely a small fraction of what it was a decade ago and should get smaller still if U.S. oil production continues to grow as projected."
Primarily because of fracking, the U.S. has accounted for virtually all of the increase in oil production and for half of all natural gas, which saw the largest increase for any country in history. Sitting atop that boom is Exxon, which itself is the world's largest energy company, and it may be ready to bring even more to market.
Along with Hess and China's CNOOC, Exxon owns the largest portion of a new oil field off the coast of Guyana that just began producing its first oil and is expected to hit full production of 120,000 barrels per day within a few months. Recoverable resources for the area are estimated to exceed 6 billion barrels of oil equivalent.
A new discovery in the area was also just reported by Exxon, and as many as 750,000 barrels per day could be produced by 2025. It will begin production within five years of having made the discovery, some four years ahead of the industry average, and generate a 10% return even if oil falls to $40 per barrel. It has similar returns on its Carcara project off the coast of Brazil, too, that should begin producing its first barrels in 2023 to 2024.
Oil is north of $60 per barrel now, but having spent the past few years preparing its business to run on lower oil prices, Exxon is among just a handful of producers that can still profit if a new bear market swamps the industry.
Not just production, but refining, too
While Exxon's production capabilities are prodigious, it has also structured itself beyond its upstream capabilities to have leading downstream refining projects. Earlier this year, it announced it was investing $9 billion in six major projects, including hydrofiners, hydrocrackers, and cokers, giving it the ability to break down heavier crudes containing longer hydrocarbon chains into higher-value products like diesel and gasoline.
Exxon also plans to invest $2 billion in the Permian Basin to support its logistics projects in coastal refining, terminal capacity, and marine export. The combination of investments upstream, downstream, and in chemicals allowed it to outline a path forward that it says will let it double its earnings by 2025 to $31 billion.
A consistent track record in all kinds of markets
Exxon is one of the more innovative leaders in the energy industry, yet it has been served well by a conservative management team that has paid dividends to investors for over 100 years and has consistently raised the payout each year for the last 37 years.
Even during the Great Recession, which sent shock waves through the oil industry, Exxon was financially stable enough to continue paying out its dividend.
The yield is almost 5%
Despite the superlatives, ExxonMobil stock has underperformed the market over the past year as investors avoided the sector, rising just 1% compared with the S&P 500's 30% gain. That low price represents an opportunity for retirees.
The yield on Exxon's dividend is now 5% as a result of the depressed share price, but without adding too much risk, even though it has substantial negative free cash flow at the moment. Because it is investing large amounts in its capital expenditures, it has relied upon debt to pay for it, but has committed to doubling its cash flows as well over the next few years.
A focus on the future
Finding secure, dividend paying stocks now means an investor can concentrate on locating the best payouts without concern about the market's volatility over what may be a tumultuous time. Your income will continue regardless of how the market performs.
There are a number of stocks that could fit the bill for retirees, but ExxonMobil may be one of the best suited for the task.