Energy giant ExxonMobil (XOM 1.42%) hardly needs an introduction. With a market cap of $460 billion, it's easily one of the largest oil and natural gas producers on the planet. Add in a dividend yield of 3.1%, compared with the S&P 500's miserly 1.5% average, and there's a good reason for income-focused investors to be examining this goliath.
Here's why ExxonMobil is a no-brainer dividend stock if you're in the market for an energy stock.
ExxonMobil's dividend just keeps growing
If you're seeking a reliable dividend stock, the cyclical energy sector is a rough place to start looking. Performance in this group often swings, sometimes very quickly, between huge profits and painful losses. There aren't all that many dividends that can withstand such extremes.
Yet ExxonMobil has managed to increase its dividend annually for 41 consecutive years. That's an impressive streak. But think about this success for a brief second.
It isn't shocking that ExxonMobil would be able to increase its dividend in a year like 2022 when oil was hitting $120 per barrel. That's the easy part, given that just about all energy stocks were gushing profits at that point. But what about in 2020, when pandemic-driven economic shutdowns pushed oil to a low point? It was so bad that, for a brief moment, the price of a barrel of West Texas Intermediate crude, a key U.S. energy benchmark, fell below zero. ExxonMobil didn't flinch. The annual dividend still ended up higher than it was in the previous year.
Clearly, ExxonMobil and its board believe strongly in rewarding investors with regular dividend increases. The proof is in the dividend streak, and if dividend consistency is important to you, this passive-income energy giant should be atop your list of energy stocks to consider.
This is ExxonMobil's secret weapon
What you need to understand before you buy it is how ExxonMobil achieves this dividend consistency. The big answer is found on its balance sheet. As the following chart highlights, ExxonMobil's debt-to-equity ratio is a very modest 0.2. That's low by any standard and is the second lowest leverage among ExxonMobil's closest peers. However, this is just the starting point.
XOM Debt to Equity Ratio data by YCharts
A strong financial foundation provides a company with the flexibility it needs to deal with adversity. Given that energy downturns are just a regular part of the sector in which ExxonMobil operates, it makes sense that it would focus on having a strong balance sheet. The magic starts to show up when energy prices fall.
XOM Debt to Equity Ratio data by YCharts
As this chart shows, when oil prices plunged in 2020, ExxonMobil's leverage rose. That was common within the company's peer set, but ExxonMobil had more room than most of its competitors did to take on debt. That debt was used to fund the business and support the dividend. When some of its peers resorted to dividend cuts, ExxonMobil didn't have to. Note, too, that when oil prices recovered, ExxonMobil simply reduced its leverage. Thus, it is again ready to handle the next industry downturn.
There are higher-yielding options, but...
ExxonMobil doesn't have the highest yield in the energy patch. Yet it's an industry giant that has proved time and again that it knows how to handle the inherent volatility of the industry in which it operates while continuing to reward dividend investors well. If you're looking for a dividend-paying energy stock that you can count on, ExxonMobil is the first name you should consider. After looking at ExxonMobil, you'll probably want to compare all other options to it. In the end, you might end up back where you started -- with industry giant ExxonMobil as your prime selection.
