Exxon’s more than 60% gain for 2021 is just the beginning as the stock is poised for continued success over the medium term.
The company’s dividend increase announcement signals that there is plenty of room for this energy giant to run.
Exxon’s 3Q Earnings highlight the financial strength of the franchise and the company’s continued fiscal discipline.
With a current yield of 5.5% and growing, Exxon is a great source of income for investors today.
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zorazhuang/E+ via Getty Images Against a backdrop of severe uncertainty, Exxon Mobil was poised for impressive returns for 2021 and was named one of our four Dividend Dominators . The results have been nothing but spectacular as the stock is up nearly 65% for the year. While some may be wondering if there is little fuel left to Exxon’s rally, last week’s earnings release proved otherwise. Exxon’s management showcased how they are maintaining their heightened fiscal discipline amidst oil prices not seen in years.
This has translated to enhanced profitability for the company and renewed programs to grow the dividend annually as well as $10 billion in share buybacks. In our view these two programs are emblematic of the company’s financial health and pave the way for continued shareholder gains. Introduction
Exxon Mobil ( XOM ) was possibly one of the least liked companies at the start of 2021. Against this “wall of worry” Exxon’s management proved to investors that the changes the company made during the Pandemic positioned them well for future growth. For the contrarian investor, Exxon has been a great stock to own for 2021, handily outperforming the broader stock market by more than two-and-a-half times.
Year to Date Total Returns: Exxon Mobil versus the SPDR S&P 500 ETF ( SPY ) Data by YCharts The question for investors today is “What to do with Exxon shares after such an impressive rally?” Fortunately, last week’s earnings provided some key considerations for Exxon’s future. Exceeding All Expectations
In the depths of the Pandemic, investors thought all energy stocks were in dire financial health. This made logical sense as the price of oil had collapsed and even for a few hours it turned negative. Depending on the lasting impact of the Pandemic, there was a reasonable thought that demand for oil products would remain low. As the idea goes, transportation (driving cars, flights, busses) would be significantly below pre-Pandemic levels as people preferred working from home and kept their leisure (and business) travel to a minimum.
Admittedly, this was an extreme scenario and one that may have only had the potential to exist for a handful of quarters at most. Regardless, with this potential prospect in front of them, oil companies made major changes to remain profitable in a prolonged low oil price environment. Nearly all oil companies cut overhead expenses, lowered their planned capital expenditures, and revised their new developments to only ones with the highest potential returns. Additionally, many oil companies also chose to cut their dividend as one of the steps in retaining capital. In this regard Exxon was the exception.
Exxon’s Extreme Yield at the Depths of the Pandemic Data by YCharts Exxon’s decision to maintain the dividend was a strong signal from the management team. While many forecasted that the company’s next step was to cut the stock’s dividends, management held steady. More importantly, they focused on how the company could maintain the current dividend rate even as the stock’s yield hit double-digit territory. What many missed during this time is that with the restructuring done within the company, there was plenty of cash flow to support the dividend even if oil stayed in the $30s.
Most importantly, management’s resolve around the company’s dividend was the first sign of Exxon’s financial wellbeing during such a challenging period. Since then the story has improved dramatically, as has Exxon’s share price. Why 3Q Earnings Was the Turning Point
Last week’s earnings announcement was another of these major signals. With oil prices well above 2019 levels, there is no question about the company’s profitability. To put today’s current oil prices in perspective, the last time oil was above $70 per barrel for any meaningful period of time was 2014. With such an extreme rebound in the price of oil, nearly every energy company has turned into an ATM for their investors.
The challenge with these periods of […]