In a year that has been rocky for many companies following the post-March 2020 bull market, ExxonMobil (XOM -0.65%) has trended in the right direction, up more than 31% year to date as of April 11. In the past year alone, the company's stock price has increased by over 51%. With the company's and energy sector's success in 2021, some investors may be wondering if the company is a good long-term investment, and the short answer is yes. Here's why.
In 2021, ExxonMobil made $23 billion in net income, a far cry from the $20.4 billion the company lost in 2020. Of course, the 2020 figures are largely due to shutdowns associated with the coronavirus pandemic, but even when compared to the $14.3 billion the company made in 2019, it's an impressive jump.
The company managed to reduce structural costs by $1.9 billion (totaling $5 billion since 2019), and its $48 billion of cash flow allowed it to pay $20 billion toward debt and get its balance sheet to pre-pandemic levels -- a positive sign for the company's future.
Commitment to helping the climate
With its size and operations, ExxonMobil, without a doubt, plays a sizable role in climate change. In January 2022, the company announced its plan to achieve net-zero Scope 1 and Scope 2 greenhouse gas emissions by 2050. Scope 1 and 2 deal with emissions related to its business operations, while Scope 3 relates to emissions from the use of its products (such as gasoline in your car).
Since 2000, the company has invested around $10 billion to develop low-emission energy. To achieve its 2050 goal, it has pledged to invest another $15 billion by 2027 on lower-emission initiatives. If ExxonMobil can be an industry leader in lower-emission solutions and lead big oil in a more sustainable direction, it's in good shape to keep its market dominance in an industry that has to inevitably head in a cleaner direction.
In the oil industry, companies are categorized as either upstream or downstream. Upstream oil companies work in oil discovery, production, and extraction, and downstream companies deal with refining the oil into petroleum and getting it to consumers. ExxonMobil does both and also has operations in chemicals. In 2021, roughly 62% of its earnings came from upstream, 30% from chemicals, and 8% from downstream.
Having streamlined operations from start (discovery) to finish (your gas tank) gives the company a competitive advantage and presents multiple ways to cut some operational costs and improve efficiency. During its annual Investor Day presentation in March 2022, ExxonMobil outlined plans to decrease structural costs by $9 billion a year by 2023 compared to 2019 (with $5 billion already achieved).
To complement this plan for cutting costs, the oil giant also plans to double its earnings and cash flow by 2027 compared to 2019. If the company can achieve this and its goal of decreasing its breakeven price -- the price at which it covers costs and capital obligations like capital spending and dividends -- by approximately $10 per barrel, its returns on capital and growth potential should be good news for long-term investors.
It pays to own it
One thing investors can count on with ExxonMobil is its lucrative dividend payout. At 4.2%, ExxonMobil has one of the higher dividend yields of S&P 500 companies, and it has increased its yearly dividend payout for 39 consecutive years at an average of 6% annually. The only thing that's certain in the market is volatility, and while there are no guarantees surrounding ExxonMobil's stock price, investors can be confident their quarterly dividend payments will continue no matter the broader economic conditions.