ExxonMobil (XOM +0.65%) is a giant company, with a huge market cap of roughly $400 billion. It has a fairly attractive dividend yield of around 3.8%, compared to the S&P 500 index's relatively tiny 1.4% yield. It also happens to have an investment grade-rated balance sheet.
There's a lot to like here for investors looking at the energy sector. But it gets even better when you dig deeper into the story. Here are three other reasons to like this dividend-paying energy stock.
1. ExxonMobil has a great dividend track record
Income investors are often attracted to stocks with high yields. When you add in consistent dividend growth, the appeal grows dramatically. ExxonMobil has increased its dividend for 41 consecutive years, well above what any of its closest peers have achieved. Chevron gets closest at 36 years, while BP and Shell both ended up cutting their dividends during the 2020 energy downturn that coincided with the coronavirus pandemic.
XOM Dividend data by YCharts
As the chart above shows, it didn't matter what oil prices were doing over the past few decades. ExxonMobil just kept inching the dividend higher, rewarding investors for sticking with it when oil prices were low and the business was struggling. That's the type of reliability that can be the cornerstone of a diversified income portfolio.
2. ExxonMobil's secret weapon is its balance sheet
The thing about energy downturns is that ExxonMobil's earnings will fall, often dramatically. So how does it manage to keep increasing the dividend through periods when it might even be losing money? The answer is found on that investment grade-rated balance sheet.
XOM Debt to Equity Ratio data by YCharts
The coronavirus pandemic is a great example. During this period, governments around the world effectively shut their economies down in an effort to slow the spread of the virus. That led to a steep drop in energy demand and energy prices. ExxonMobil's financial results were pretty ugly for a little while. But it took on debt, increasing its leverage, so it could continue to support its business and pay the dividend. Having a strong balance sheet is what allowed it to do this.
Management was willing to add leverage because oil price declines have historically been followed by oil price rebounds. And that's exactly what happened this time around, too. When oil prices recovered, ExxonMobil posted large profits and reduced its leverage again so it would be prepared for the next oil price crash.
NYSE: XOM
Key Data Points
3. ExxonMobil knows how to use shareholder money
So, from a dividend investors' standpoint, ExxonMobil is a pretty attractive option in the energy sector. But there's more to this industry giant than just a dividend. It also happens to be a very good steward of shareholder capital. The way to see this is by examining the return on capital employed (ROCE), where higher percentages indicate better results.
XOM Return on Capital Employed data by YCharts
As the chart above shows, ExxonMobil isn't always at the top of the heap with regard to ROCE relative to its closest peers. But it is, in fact, very often at or near the top of the pack, showing that it generally makes very good use of investor capital. So not only are dividend investors getting a reliable income stream, but they are also buying a well-run energy company.
ExxonMobil will help you sleep at night
ExxonMobil isn't perfect, but no stock is. For example, the shares can be volatile given the inherent volatility of the energy sector. But its strong dividend history and well-worn playbook for dealing with the industry's downturns should allow you to rest easy owning it. And knowing that it is one of the best stewards of shareholder capital in the industry means you can be comfortable owning it during the good years, too.
While the best time to buy ExxonMobil is often when the oil industry is in the doldrums, if you are a conservative dividend investor, this company should probably always be on your short list.
