Over the years, Exxon has regularly delighted investors with prompt payment of dividends, and it has also raised quarterly dividend payouts to shareholders for almost three consecutive decades. XOM is indeed an income stock for most investors, even in a down market, but it is not exempt from market volatility. Ultimately, there is no dividend stock that never goes down!
Market volatility is one of the main reasons some investors prefer bonds to investing in most stocks. Bonds are less volatile and less risky investments compared to stocks, but you could get higher returns from some stocks like XOM than you would from a less risky bond. Besides stock market volatility which affects most stocks in general, drops in oil prices often affect companies in the oil and gas sector, but Exxon Mobil has proven to be a company to beat in terms of stability because it has a balanced portfolio across energy resource types like conventional and unconventional energy demands, heavy oil sands, liquid natural gas and deep water energy explorations.
Chevron Corporation (CVX) is another oil giant stock which S&P Capital IQ analysts believe is next in line to Exxon in providing stability to investors in a time of volatile energy prices. Chevron, like Exxon Mobil, has a balanced string of resources among its exploration, production, refining and marketing assets. Both firms continue to maintain strong cash flows which regularly result in dividend hikes and share buybacks.
In terms of share price stability, Exxon stock price has consistently maintained a 200-day price average of $84 per share, but some of its competitors like BP (BP), Royal Dutch Shell and Carrizo Oil and Gas (CRZO) have fared rather inconsistently. The stock price of BP has dropped by about 14 percent since the beginning of 2012 to its present price of about $40 per share. Royal Dutch Shell has dropped about 11 percent of its share price during the same period while Carrizo Oil and Gas has lost more than 28 percent of its share value since the beginning of the year. The stability of Exxon’s share price isn’t unconnected with its massive $5 billion share buyback. Exxon’s successful share buyback deal greatly helped the company to outperform its peers in the energy sector, besides stabilizing its share value.
Evaluation and Market Outlook
Exxon is a highly capitalized stock with a market capitalization of about $397 billion, the highest in the energy sector. Exxon’s price per earnings ratio of 10.27 is the best in its sector and it is ranked next to BP Plc in terms of sales. Exxon Mobil has consistently maintained an attractive dividend yield of 2.7 percent which continues to catch the attention of investors.
The first quarter financial results of Exxon Mobil showed earnings per share of $2 on total revenue of $124 billion. Though the $2 reported in its first-quarter as earnings per share is lower by 14 cents compared to the corresponding results in the previous year, its total revenue went up by $10 billion compared to the same period last year. Exxon recently increased its quarterly cash dividend by 10 cents or 21 percent from $0.47 per share to $0.57 per share which is highly commendable and attractive to investors. In addition, Exxon maintains an operating cash flow of about $57.8 billion which shows that the company has solid earnings potential.
Considering the past history of Exxon Mobil, I believe buying and holding XOM stock is a wise idea. This would be owning a stock that has a chance of continuing its bright financial record.