ExxonMobil (XOM) is a poster child of the benefits of dividend stock investing. The company has consistently raised its cash payout since 1970, increasing distributions to shareholders more than 31x over that period. It is one of just 52 Dividend Aristocrat stocks, an exclusive group of companies that have raised payouts for at least 25 consecutive years.
Data Source: Yahoo! Finance.
Long-term shareholders in XOM have been handsomely rewarded; $10,000 invested in the company in 1970 is now worth more than $3 million. But as oil prices have plummeted in recent months, the outlook for the company has deteriorated. ExxonMobile remains a Dow 30 component and one of the most valuable companies in the world, but concerns over the long-term direction of oil prices are weighing on the company’s shares.
Over the last several quarters, ExxonMobil has started burning through cash and taking on debt in order to maintain its dividend and simultaneously finance a share buyback plan.
Data Source: SEC filings.
During the last three quarters, XOM’s dividends have exceeded the cash flow generated from operations net of capital expenditures. The above chart offers a simplified summary of the company’s operations, but the current status is clearly not sustainable in the long run. XOM’s operations are generating less than the $12 billion the company pays out each year to shareholders.
A cut in the XOM dividend is by no means imminent. The company has a number of options for increasing the size of the green bars in the chart above, even if revenue remains sluggish. And it certainly has sufficient cash — nearly $40 billion — to continue to increase its dividend for several more years. And, of course, oil prices could skyrocket at any point and give a much-needed boost to the company’s profitability.
This article, Is the XOM Dividend in Trouble?, first appeared on Dividend Reference.