In this series, we analyze financial metrics to begin answering the following questions about a company's dividend:
- Over time, has this company steadily increased its payouts?
- How sustainable is the dividend?
- Does the company have room to further increase the dividend?
The Dividend Report Card wasn't designed as a buy or sell signal, but rather as a tool to gauge the health of a company's dividend. For a full explanation of each category, click here for a tutorial.
Today's pupil is ExxonMobil
Dividend history
|
Metric |
5-Year Annualized Growth Rate |
|---|---|
|
Dividend per share |
8.8% |
Source: Exxon investor relations.
There's no question that ExxonMobil has a very good dividend track record -- it's been paying dividends for over a century and has raised its payout for 28 consecutive years.
Nevertheless, the growth rate over the past five years was below 10%, so it scores a still-respectable 4 of 5 in this category.
Sustainability
|
Metric |
Trailing 12 Months |
Final Grade |
Report Card Score |
|---|---|---|---|
|
Interest coverage |
158 times |
10% |
5 |
|
EPS payout ratio |
27.9% |
10% |
5 |
|
FCFE payout ratio |
38.9% |
30% |
5 |
Source: Capital IQ, a division of Standard & Poor's, as of March 14.
Exxon has one of the best balance sheets in the U.S. markets, fortified with good assets and plenty of earnings to pay creditors back many times over. It's little surprise, then, that Morningstar gives Exxon a "AAA" credit rating.
The dividend has also been consistently covered by earnings and free cash. Put simply, the current dividend appears very sustainable.
Growth
|
Metric |
Trailing 12 Months |
Final Grade |
Report Card Score |
|---|---|---|---|
|
EPS payout ratio |
27.9% |
10% |
4 |
|
FCFE payout ratio |
38.9% |
20% |
4 |
|
Sustainable growth rate |
16.9% |
10% |
5 |
Exxon spends a lot of its free cash repurchasing shares -- in 2010, for instance, it repurchased $13.1 billion worth of its stock and paid $8.5 billion in dividends. Fortunately for dividend investors, that ratio has improved since 2006, when it repurchased nearly $30 billion in shares and paid out $7.6 billion in dividends. The company could conceivably pull back on less "sticky" stock repurchases and further fund dividends.
Analysts expect long-term earnings growth to be around 6%. I would expect annualized dividend growth over the next five years to roughly approximate that rate in the 6%-8% range.
Competitors
An "ungraded" section of the dividend report card compares a stock's current yield against that of direct competitors. If it's too high relative to competitors' yields, the board could be tempted to slow the growth rate, or cut the payout, to bring it more in line with the industry average.
|
Company |
Dividend Yield |
Median Analyst Est. Long-Term EPS Growth |
|---|---|---|
|
Chevron |
2.9% |
1.4% |
|
ConocoPhillips |
3.5% |
(2.9%) |
|
BP |
3.9% |
16.0% |
With its current yield at 2.1%, Exxon's dividend yield is a bit lower than this peer group, but its growth prospects seem much better, as well (BP is coming off a very low profit base after the spill). Still, this may provide a tailwind for future dividend growth if the board wants to bring the payout more in-line with peers.
Pencils down!
With all the numbers in, here's how Exxon's dividend scored:
|
Weighting |
Category |
Final Grade |
|---|---|---|
|
10% |
History |
4 |
|
Sustainability |
||
|
10% |
Interest Coverage |
5 |
|
10% |
EPS Payout Ratio |
5 |
|
30% |
FCFE Payout Ratio |
5 |
|
Growth |
||
|
10% |
EPS Payout Ratio |
4 |
|
20% |
FCFE Payout Ratio |
4 |
|
10% |
Sustainable growth |
5 |
|
100% |
Total Score (out of 5) |
4.6 |
|
Final Grade |
A |
Exxon has been a very strong dividend payer for decades and judging by the DRC score, it seems to be in a good place to continue that tradition. Considering its modest dividend growth potential, however, prospective investors may be turned off by the relatively low current yield.
Have you added Exxon to your Watchlist yet? Well what are you waiting for?
