It's often said that an old dog can't be taught new tricks. Folksy wisdom to be sure, but in business, it's evolve and lead or risk getting left behind.
When investing for the long term, market participants want to find companies that aren't just performing well today but are also making moves to position for long-term success. What the right moves are vary from industry to industry, but among oil stocks, ExxonMobil (XOM +1.10%) is a prime example of a name that's rewarding today and could be even more rewarding down the road.
ExxonMobil will look significantly different in the future and investors stand to benefit. Image source: Getty Images.
By the time the next decade starts, and certainly by 2040, the version of ExxonMobil investors see is likely to be starkly different from the one they see today. That could be a good thing.
Exxon evolution in full swing
There are only so many ways to cook an oil production omlette. Exploration and production companies primarily drill offshore or on land in shale regions such as the Permian Basin in West Texas. Limitations on where oil is typically found don't cap producers' ability to evolve. Exxon confirms as much.
Already one of the world's largest energy companies, Exxon is fortifying that status by leaning heavily on technology to maximize cost-efficiencies across its primary assets, including Guyana, the Permian Basin, and liquefied natural gas (LNG) sites. Exxon's tech prowess and realized efficiencies are paying off for investors. In its 2030 plan, the company forecasts annual earnings and cash flow increases of $5 billion WITHOUT increasing spending.
Here's the math: Exxon's 2030 plan lays out $25 billion in earnings growth and a $35 billion jump in cash flow from 2024 through 2030 with "cumulative surplus cash flow of roughly $145 billion through 2030." Again, the company is forecasting those impressive targets without the need for significant spending increases, but it told investors it expects the return on currently deployed capital to reach 17% by 2030.
NYSE: XOM
Key Data Points
In other words, Exxon is becoming a leaner, "meaner" outfit. So the company investors potentially embrace is likely to look significantly different, in a good way, five to 15 years out.
What Exxon is doing today in the Permian Basin is proof positive of that assertion. In West Texas, Exxon is leveraging technology to more effectively keep well fractures open, boosting output along the way. It's possible that as the company deploys that technology across more wells in the region, it could add billions to what's already an 18-billion-barrel treasure trove.
One thing that won't change
Those of us old enough to remember "new Coke" from the 1980s know change for the sake of change isn't always a good thing. However, if properly executed, Exxon's evolution has the potential to reward investors.
Bolstering the case for being patient with this energy name is the one thing highly unlikely to change: the company's commitment to being a stalwart oil dividend stock.
Exxon is the second-largest dividend payer in the S&P 500, and its payout has increased for 43 years. That level is matched or topped by just 5% of S&P 500 member firms. Dividends aren't guaranteed, but Exxon's operational prowess suggests its payout is safe and primed to grow, adding to the long-term buy thesis with this stock.
