ExxonMobil (XOM +0.94%) has raised its dividend for 43 consecutive years. That puts it on track to join the elite club of Dividend Kings, which have raised their payouts annually for at least half a century. It currently pays a forward yield of 3%.
ExxonMobil maintained that streak even as the U.S. endured four major recessions over the past four decades. Including reinvested dividends, its stock has generated a total return of 4,450% over the past 40 years. Let's see why it's so resilient, and why I'd still buy it today.
Image source: Getty Images.
Why is ExxonMobil a resilient company?
ExxonMobil's upstream business extracts oil and natural gas, its midstream business owns more than 16,000 miles of pipelines across North America, and its downstream business produces petroleum products. That diversification insulates it from volatile oil prices.
Higher oil prices usually generate tailwinds for its upstream business, as its revenue growth outpaces its expenses, but they can hurt its downstream business with higher input costs. But when oil prices decline, its downstream business can grow faster than its upstream business. Its midstream business, which simply charges "tolls" for pipeline use, flourishes in both markets.
NYSE: XOM
Key Data Points
ExxonMobil has a presence in over 56 countries, but it gets more of its oil and gas from the United States. It still gets about a fifth of its resources from the volatile Middle East, but it usually offsets that pressure with its stable production in other markets.
To further reduce its dependence on the Middle East, it's expanding its largest oil fields in the Permian Basin, building more offshore oil rigs in the Gulf of Mexico, importing oil sands from Canada, and ramping up production in Guyana (one of the world's fastest-growing oil regions) and other high-growth markets across Latin America, Asia, and Africa. It's also exporting more liquefied natural gas (LNG) and expanding its carbon capture and storage business.
How sustainable is ExxonMobil's dividend?
ExxonMobil's EPS growth has been volatile over the past five years. Its profits surged in 2022 after Russia's invasion of Ukraine sent oil prices soaring, but normalized over the following three years. However, its fluctuating EPS still easily covered its annual dividend hikes.
|
Metric |
2021 |
2022 |
2023 |
2024 |
2025 |
|---|---|---|---|---|---|
|
Diluted EPS |
$5.39 |
$13.26 |
$8.89 |
$7.84 |
$6.70 |
|
Dividend per Share |
$3.49 |
$3.55 |
$3.68 |
$3.84 |
$4.00 |
|
Payout Ratio |
64.7% |
26.8% |
41.4% |
49% |
59.7% |
Data source: ExxonMobil.
This year, the price of WTI crude oil surged again after the outbreak of the Iran war in late February, hitting a four-year high of $112.25 per barrel in mid-May. It's since pulled back to under $70 per barrel, but analysts still expect that spike to boost ExxonMobil's EPS by 75% to $11.71 this year and comfortably cover its forward dividend rate of $4.12 per share.
Over the past 12 months, ExxonMobil spent 92% of its free cash flow (FCF) on its dividends. That cash dividend payout ratio should also decline this year as its profits soar.
Why is ExxonMobil a safe investment right now?
ExxonMobil's upstream business benefited from soaring oil prices, and it should keep thriving as long as the price of WTI crude oil stays far above its breakeven level of about $30 per barrel. Even if crude oil prices finally pull back, its midstream and downstream businesses can pick up the slack and generate plenty of cash to cover its dividends.
At $136 per share, ExxonMobil still looks like a bargain at 12 times this year's earnings. It's not as tightly tethered to oil prices as companies like Occidental Petroleum, which generates most of its revenue from its upstream business, but it's still a rock-solid investment.
