As you already know, ExxonMobil (NYSE:XOM) reported blowout earnings in January. But despite the great fourth-quarter numbers, investors are wondering what's in store for the company -- and their dividends -- while oil prices remain sky-high.
ExxonMobil had no specific comment in the quarterly report about the future of its dividend payouts, but it did reiterate that last year, the dividend grew by 8%. Using last year's numbers as a proxy for future dividend growth (a method that may or may not be accurate), we might anticipate a 2.2-cent increase in the second quarter. If the company continues the two-decade tradition of raising dividends, shareholders can anticipate an annual dividend of roughly $1.14 by the end of 2005. Bear in mind, though, that dividend increases generally occur with increases in company profitability.
Companies will, or at least should, increase (or offer) dividends when the yield to investors is greater than it might be if that money were invested in the business itself. In other words, when a company is fresh out of profitable new investments, it should give cash back to its owners rather than squander it chasing unprofitable ventures.
Also noteworthy is that the company said it "purchased $10 billion (gross) last year, in the largest share purchase program in history." Not a bad sign if you picked up some additional shares over the past year, since the net profit for each share outstanding is incrementally increased via buybacks -- think reverse dilution.
What's more, the Energy Information Agency (EIA) recently stated that the price per barrel for crude was, on average, $14.50 higher in the first quarter of 2005 than during Q1 2004, when the market saw an average price of $49.77 per barrel. The EIA also mentioned that global demand for oil through 2006 is expected to rise by 2.6% per year. That's down from the 3.4% growth that was forecast in 2004. Though higher oil prices don't always guarantee greater profitability in a company's bottom line, higher prices do generally help. And crude is expected to remain above $50 a barrel for 2005 and 2006, according to the EIA.
Given what we know, I'd say investors can expect moderate increases in ExxonMobil's dividend for years to come.
Fool contributor Mark Whistler does not hold any of the companies mentioned above, but feel free to email him anyway. Care to discuss this article?
