XOM Stock Offers Great Dividends
It’s not trading at its all-time high of $103.00, but Exxon Mobil Corporation (NYSE:XOM) is performing better than its peers. Despite low oil prices, Exxon Mobil stock is trading comfortably higher than $80.00 per share. Plus, late last year, Exxon Mobil raised its 3.5% dividend yield, which it pays four times a year, by 10%.
Exxon Mobil said it would cut 2016 investments by 25% to $23.0 billion to cope with plunging oil prices. Yet, the company will maintain its dividend. As a result, investors’ fears were calmed and XOM stock received a percentage-point boost. In a sector that has slashed returns in 2015, Exxon Mobil stock remains a haven of stability.
As for the Exxon Mobil outlook for 2016, despite cheap oil, XOM stock is trading at levels comparable to 2011. (At that time, oil prices were closer to $100.00 a barrel.) One of the reasons is that Esso, an Exxon Mobil subsidiary, uses oil as a raw material. It transforms it into gasoline, jet fuel, diesel fuel, and other products. Thanks to its global presence, Esso has generated robust earnings thanks to rising European refining margins. XOM stock earned $1.5 billion in profit in the second quarter, up from $795 million in the same period last year. (Source: “Exxon Mobil earnings fall 52 percent,” Exxon Mobil, July 31, 2015.)
In 2015, Exxon Mobil already cut its investments by 20%. While many expected this, the fact that oil exploration activity is the group’s source of income makes the cuts all the more significant. It suffered a loss in the U.S. in the fourth quarter, confirming the effects of cheap oil.
Exxon Mobil’s production should nonetheless increase slightly by 2017. The company is about to start 10 new projects, representing the equivalent of 450,000 barrels per day. It should be between 4.0 and 4.2 million barrels per day by 2020. (Source: “Exxon Mobil to add 450,000 boe/d by 2017,” Offshore Engineer, March 2, 2016.)
Exxon Mobil has not yet announced job cuts or asset sell-offs as many of its competitors have done to cope with the oil price trend. But Exxon stock is about the dividend.
Dividends can be described as the portion of profit that a company, such as Exxon Mobil, will distribute in the form of cash. Today, with all the market’s uncertainties, dividends have become more important to investors.
Exxon Mobil shareholders can always rely on dividend yields. During periods of low prices, petroleum companies look for ways to cut costs and postpone projects. They focus on cash flow and high dividends, allowing oil companies to maintain strong fundamentals.
XOM stock, like many oil majors, has diversified its production capacity by focusing on renewable energy, gas, and refining. When oil prices drop, revenue from other divisions would help balance revenue losses.