Dividend Aristocrats Part 31: Exxon Mobil Corporation (XOM)

ExxonMobil’s Competitive Advantage

Exxon Mobil Corporation (NYSE:XOM) is one of (if not the most) powerful corporations in the world.  The company also has an extremely long dividend streak.  The combination of these two facts shows that ExxonMobil has a durable competitive advantage.

ExxonMobil’s competitive advantage comes from its massive size.  ExxonMobil’s tremendous earnings power allows it to:

 – Diversify across a wide range of projects

 – Be involved in large scale oil and gas projects

 – Provide leverage for dealing with governments

The oil and gas industry has long held close ties to the US government.  ExxonMobil has spent more than $10 million a year lobbying every year since 2006.  It makes a great deal of sense for ExxonMobil to focus on government policy.  The company is significantly affected by both US foreign policy and environmental laws.  Overall, ExxonMobil hopes to gain better legislation through its lobbying efforts.

The company’s unique combination of diversification, size, and political influence give ExxonMobil its strong and durable competitive advantage.

Growth Prospects

ExxonMobil’s main future growth driver is rising global energy demand.  Global energy demand is expected to trend upward due to population growth and rising GDP in developing markets.

Demand growth from population and broadening middle classes will be partially offset by efficiency gains from advancing technology. An example of this is the increases in fuel efficiency in the auto industry over the last twenty years.  Still, the overall trend is more energy use, not less.

Energy Mix
Source:  ExxonMobil Outlook for Energy in 2040, page 44

There is only a finite supply of oil and gas on earth. Fracking and deep water operations have allowed ExxonMobil (and its competitors) to find and produce oil that would have been impossible or uneconomical in the past.  Better technology allows oil companies to produce more oil going forward, not less.  So much for peak oil.

XOM Liquids

ExxonMobil’s long-term growth outlook is favorable due to the expected demand increases in energy over the next several decades.

The company will likely grow earnings-per-share faster than overall energy demand due to share repurchases, efficiency gains, and possible market share gains.