Exxon Mobil is one of the largest companies in the United States and an extremely important company in the energy sector. For investors, the XOM dividend has long been a stalwart of the investment thesis in owning shares of this company. While the XOM dividend has been a long-term consistent and reliable dividend, 2020 has brought unprecedented uncertainty to both the XOM dividend, specifically, and investing in the energy sector, generally.
The largest descendant of the famous Standard Oil corporation, Exxon Mobil is an oil and gas producer with upstream and downstream operations in the sector. As of year-end 2019, Exxon had nearly 24,000 operated wells with proved reserves over 22 billion oil-equivalent barrels.
To provide a more thorough background as we analyze the XOM dividend further, let’s look at how Exxon’s business has been doing in recent years.
Now, we’ve got to touch on the price of oil over these years. As you’ll see, XOM’s revenue is highly affected by the price of oil. Here’s a look at the price of oil over the last decade or so:
As you can see, the price of oil was high during the years from 2010 to 2014. During these years, revenue by XOM ranged from $368 billion to $467 billion. 2015 and 2016 saw much lower oil prices and XOM revenue was less than $250 billion in each of the years between 2015 and 2017. While the price of oil and XOM revenue rebounded slightly in 2018 and 2019, we now know that oil has utterly crashed in 2020 and the resulting revenue declines are yet to be seen.
XOM Dividend Quick Facts
Previous XOM dividend payout:
- Last dividend payout per share: $.87
- Last dividend payment date: June 10, 2020
- Last ex-dividend date: May 12, 2020
- Yield: 7.9%
Next XOM dividend payout:
- Next dividend payout per share: $.87
- Next dividend payment date (estimated): September 10, 2020
- Next ex-dividend date (estimated): August 12, 2020
- Forward dividend yield (as of writing): 7.9%
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XOM Dividend History
Exxon Mobil is considered one of the dividend aristocrats. Dividend aristocrats refer to companies that have raised the dividend every year for at least 25 years. As of early 2020, the XOM dividend has been increased 37 consecutive years.
Interestingly, this streak is at risk as the company announced in late April that it is maintaining the $.87 per share payout for the dividend to be paid on June 10, 2020. The June dividend payment (May ex-dividend) is typically the quarterly dividend that gets increased going back many years.
Now, this might still be considered a positive considering the historic circumstances Exxon finds itself in. Many analysts are wondering if the company might suspend the dividend altogether temporarily due to the crash in oil prices. Still, seeing this company potentially end a 37 year streak is not trivial.
Let’s take a look at the XOM dividend history going back over the last decade:
XOM dividend sustainability moving forward
The XOM dividend has long been a major reason of holding XOM stock, but the certainty of the XOM dividend has hit some shaky ground in recent years both due to declining cash flow, increased levels of debt and most recently, the coronavirus crisis. While some of the ramifications of the coronavirus crisis are still to be seen, we can look at the cash flow and debt levels of Exxon as we further analyze XOM dividend sustainability moving forward.
XOM cash flow
Dividends are paid from a company’s cash flow, and more specifically, free cash flow (FCF) is often analyzed to determine dividend sustainability. Free cash flow is defined as cash flow from operations minus capex spending. Essentially, free cash flow tells us what’s left after operations to pay for things like dividends after paying for other items such as overhead, research and development, marketing and other capital expenditures and investments. If free cash flow is declining, it can introduce uncertainty with future dividend payments.
Let’s take a look at the XOM free cash flow against XOM dividend payments in recent years:
By looking at the cash flow vs. dividends paid, you can see a short fall in various years (most notably 2015, 2016 and 2019). This also doesn’t take into account the share buybacks the company has done in recent years where billions more were spent. So how is this gap made up? Debt of course.
Like much of corporate America, Exxon has been feasting on debt in this 2010’s low interest rate environment. From the 2012 to the end of 2019, Exxon increased its long term debt from just under $8 billion to over $26 billion.
Simply put, Exxon wasn’t well positioned for a major crisis in commodity prices and crashing demand in 2020. Rather than beefing up a rainy day fund for these types of environments, Exxon was spending all of its free cash flow and then some on dividends and buybacks. Unfortunately, this is hardly a rarity as many of America’s largest companies have gone done this same path. The low interest rate environment has incentivized companies to use more debt, hoard less cash and continue increasing dividends and buybacks.
Unfortunately, projecting whether or not Exxon will have to cut its dividend in the future is tough to predict. If it were strictly based on market fundamentals, it’s tough to see how Exxon could avoid a dividend cut. The decline in in cash flow and the increase in debt would typically mean that a dividend cut would be needed at least temporarily. But to make this kind of prediction would require also knowing what kind of government policy will be enacted to provide aid to companies such as Exxon. It’s very likely that some sort of aid or emergency lending program will be enabled to help a company like Exxon weather the storm and maybe even maintain its dividend payment.
Background on dividend Investing
Why is dividend investing a popular strategy for investors? Dividend investors love dividends because they can count not just on share price appreciation, but they can bank on a steady stream of payments while holding the investment. This constant stream of payments can be useful for things like retirement planning or just be a healthy contribution to a total return picture of investing. Total return of course referring to the combination of dividend based returns and share price appreciation.
Moreover, by focusing on strong dividend companies, investors can earn a return without having to sell a stock. This means that buy-and-hold investors can be rewarded over time rather than having to cash out of a position.
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Dividend growth investing typically refers to investing in stocks with a long history of increasing its dividend payments. Not only can dividend growth investors count on a steady stream of payments while holding a stock, but they can count on those payments increasing over time. Dividend aristocrats is a popular list of companies that have raised its dividend every year for at least 25 years. We mentioned above that Exxon has been on this list as it has increased its dividend for 37 years in a row (and as we said, it is at risk of ending this streak).
While dividends are an important part of investing, most financial advisors recommend focusing on a total return view of investing and maintaining a broad diversification of holdings across stocks. Since dividend stocks tend to be more stable and mature companies, if you only invest in dividend stocks, there’s a decent chance that you are holding very few growth stocks (e.g. a company like Amazon pays no dividend currently). While you might have a strong dividend yield across your portfolio, your total return might be less than if you had been holding a broader portfolio of stocks that includes both value and growth stocks across all sectors.
It’s also important to know some key dates as dividend investors:
Declaration Date -> Ex-Dividend Date -> Record Date -> Payable Date
The Declaration Date is when a company officially announces it will pay a dividend. The Ex-Dividend date is the date that you must be holding the stock order to receive the dividend. If you purchase the stock on or after this date, you will not receive the next dividend. The Ex-Dividend is usually one business day before the Record Date, which is date by which you must be on the company’s records as a shareholder in order to receive the dividend. Last but not least, the Payable Date is when the dividend is actually paid and you will see the money in your account.
Frequently Asked Questions
How much is Exxon’s (XOM) dividend?
Exxon is currently paying $.87 per share on a quarterly basis. Exxon last increased its dividend in April of 2019. Future increases are unknown at this time.
How often are dividends paid?
Dividends are typically paid quarterly by most companies, though some pay semi-annually or annually. Exxon pays its dividend quarterly.
What is the ex-dividend date for Exxon (XOM)?
To capture the dividend payout, an investor must own the stock prior to the ex-dividend date. Exxon’s last ex-dividend date was May 12, 2020 for the June 10, 2020 dividend payment. The next ex-dividend date is estimated to be around August 12, 2020 for the September 2020 dividend payment.