Exxon Mobil Corporation (NYSE:XOM) has done the impossible.
Since 1882, this company has paid out a dividend to shareholders every single year. Think about everything that has happened over that time. Wars. Depressions. Stock market bubbles. Yet through it all, XOM stock owners have always been able to rely on Exxon to mail them a dividend check.
Unfortunately, high quality dividend stocks like Exxon have always traded for a premium. But thankfully, low oil prices have allowed new investors to buy Exxon stock at a rare discount. Let me explain.
Is Now the Time to Buy Exxon Mobil Stock?
In a recent report by Barclay’s PLC (NYSE:BCS), the banking institution concluded that Exxon’s dividend yield is 1.8 times the S&P 500, compared to a 1.4 premium over the last 25 years. (Source: Dakota Financial News, last accessed September 10, 2015.) What’s interesting is that the historical data shows that when Exxon’s yield exceeds 1.7, it tends to outperform the S&P 500 Index over the next year by an average of 6.8%.
Now that’s what I call a solid argument.
Barclay’s went on to conclude that Exxon’s share price may have found its bottom after testing new lows this summer, and will be well-positioned to rise if the oil price forecast turns positive in 2016.
Of course, the prevailing wisdom on Wall Street is that energy shares are a high-risk buy at the moment. (Source: The Wall Street Journal, last accessed September 10, 2015.) Commodity prices, with oil threatening to slip down to $40.00 per barrel again in the near-term, have been hit particularly hard by a decline in global demand. The combination of global oil oversupply and decline in growth in the major emerging economies has turned investors sour on crude oil.
But some analysts maintain that financial markets have become too bearish, too fast, and that a reversal may well be on the horizon. (Source: MarketWatch, last accessed September 10 2015.)
Chart courtesy of www.StockCharts.com
The big question of course is where energy companies’ shares prices will bottom out. Investors looking to turn a profit on the eventual upswing have sat at the edge of their seats, looking for signs of an end to current volatility and the beginning of a rebound. Some analysts believe that recent large-scale sell-off cycles are that signal. (Source: Wells Fargo, last accessed September 10, 2015.)
With global central banks implementing fiscal stimulus plans and attempting to create inflation, the commodity cycle downturn could be at an end, and now may be a good time to become a seller rather than a buyer. (Source: Barrons, last accessed September 10, 2015.)
Not convinced? Consider the following facts.
1) Oil production in the U.S. is forecasted to end its multiyear record levels and taper off into 2016. (Source: Bloomberg, last accessed September 10, 2015.)
2) The majority of oil producers aren’t profitable in this low price environment. (Source: The Week, last accessed September 10, 2015.)
Assuming we don’t experience an economic collapse due to China’s stock market crash, these factors bode well for the oil price forecast.
But let’s get back to the company, and why you should think about investing in XOM stock.
Long-term investors should really be looking at Exxon’s favorable dividend yield, which would take approximately another 18 to 24 months of continuously low oil prices to come under threat. Keep in mind that because the company is an integrated one, with considerable downstream refining capabilities to offset losses in the upstream sector, Exxon is well-positioned to continue generating profits if the oil price collapses even further.
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The company’s fiscal discipline, solid asset portfolio, international scale, and integrated business model all come together to make it a strong stock pick. Exxon has historically displayed an impressive ability to generate profits for its shareholders, no matter the conditions of the current business cycle.
Here’s the Bottom Line
Major analysts appear to be correct about Exxon being a good buy. The oil major’s dividend yield is among the safest in the entire oil and gas industry, and executive and financial management remains top-notch despite the threat of stock market collapse.
If you’re looking for a solid and dependable long-term energy investment that is more than likely to outperform the market, along with a great dividend yield, then Exxon Mobil may just be the company for you.