The fun of investing in dividend stocks is that each share essentially buys you passive income that could someday pay your bills.
One way I enjoy framing investing decisions for dividend stocks is by considering how much income I receive in exchange for my capital. For example, investing $3,000 into ExxonMobil (XOM +0.14%) would generate over $100 in passive income each year.
The oil and gas behemoth is an excellent mix of dividend income and growth, making the stock a strong consideration for any long-term investor's dividend portfolio.
Here is a closer look at ExxonMobil and its potential to generate income for you.
Image source: Getty Images.
Breaking down the numbers
ExxonMobil currently trades at about $114 per share. The company pays a quarterly dividend, which it just increased to $1.04 per share. So, each share would pay $4.12 in dividends over the course of a year. Therefore, owning 25 shares of ExxonMobil stock would produce $103 in annual passive income.
At the current share price, your total investment would be approximately $2,850.
Is that a lot of money to generate $100 in dividends relative to other stocks? Not really. ExxonMobil's current dividend yield is 3.5%, compared with the S&P 500 index's yield of just 1.1%. Said differently, if you wanted to generate the same amount of income by investing in the broader U.S. stock market, you would need over 3 times as much capital.
ExxonMobil's stock price hasn't appreciated as fast as the S&P 500 over the past few decades, but that's a trade-off you're making for that additional dividend income. Some dividend-focused investors hope to hold stocks for as long as possible to delay paying capital gains taxes, so some might prioritize dividend income over price appreciation. That's part of what makes investing a personal process that's unique to everyone.
NYSE: XOM
Key Data Points
Why investors can depend on ExxonMobil
Why can you depend on the oil and gas giant for dividends, especially if you're looking years into the future?
Past results don't guarantee future outcomes, but ExxonMobil does have an impressive track record that speaks to the quality of its business and management team. The company has raised its dividend for 42 consecutive years, a streak spanning multiple recessions and a global pandemic that caused oil prices to fall below zero for the first time.
ExxonMobil's business is diversified across oil and gas exploration, extraction, refining, and retail, giving it ways to make money regardless of oil and gas prices. Additionally, ExxonMobil has a mammoth $454 billion asset base that anchors a strong, AA-rated balance sheet.
Despite renewable energy growing significantly over the decades, oil and gas aren't going anywhere soon, and that's probably even more certain now that data centers are cranking up global energy demand. ExxonMobil will likely remain a fixture in the world's energy landscape, which should mean that investors can likely count on slowly growing dividends for years to come.
How to get more out of your investment
If you plan to buy and hold ExxonMobil stock, you may want to consider reinvesting dividends if you don't need the income right away. Reinvesting dividends means that any dividends paid will purchase additional shares -- which also pay dividends.
Investing $2,850 into ExxonMobil could produce nearly enough income to buy an additional share in the first year. That may not seem like much, but that additional compounding effect adds up over time. See how much dividends have impacted ExxonMobil's total returns below, which factors in dividend reinvestment:
ExxonMobil is probably too large and slow to make you a millionaire anytime soon, but the passive income adds up and can be an effective way to get rich slowly.
