Lately, I have written a few articles about how certain stocks that are traditionally looked at as “boring” or low-risk/low-reward can actually be the best thing for your portfolio over the long term. Continuing with this theme, I’d like to make a case for perhaps my favorite long-term play of all, Exxon Mobil Corporation (NYSE:XOM).
About Exxon Mobil
Formed from the 1999 union of Exxon and Mobil, the company is the second largest publicly traded entity in the world (they were actually first for a brief period recently – thanks Apple Inc. (NASDAQ:AAPL)!). Exxon Mobil has proved oil and gas reserves of 24.9 billion boe (barrels of oil equivalent) and produces 4.5 million barrels per day.
The vast majority of the company’s revenue (80%) comes from exploration and production, with the remainder split between refining/marketing and chemicals. Exxon Mobil Corporation (NYSE:XOM) serves customers in over 200 countries, and the makeup of its revenue is not quite what I would have expected. Surprisingly, the largest share of the company’s revenue comes from Africa (25%) with the remaining three-fourths coming from the U.S. (21%), Europe (20%), Asia (20%), Canada/South America (10%) and Australia/Oceana (3%). A more internationally diverse revenue stream is hard to come by in any other company in the market.
Exxon plans to invest approximately $37 billion per year in oil and gas projects. By 2016 the company anticipates adding 1 million boe/day of capacity, and they are expecting to begin nine major oil and gas projects within the next two years.
Not So “Boring” After All
To illustrate the long-term investability of Exxon Mobil, consider the following facts: From the 20 year period between 1992 and 2012, the share price has climbed 9.7% on average. Note that this is just referring to share price, not yield or any other returns. This is fantastic growth for any investment, and for it to be sustained over such a long period of time (including two major recessions) is truly remarkable.
As far as dividends go, Exxon Mobil is not a high-yielder as compared to some other long-term favorites, however I believe that more important than that is the company’s record of increasing the dividend, which Exxon Mobil has done as well or better than virtually anyone else (see chart).
Just a thought: Although Exxon Mobil’s dividend is a bit lower than most income investors would like, at around 2.6%, this could still provide investors with more income once they get to retirement age than most of the 4-5% yielders.
Let’s say that I make a hypothetical $100,000 investment into Exxon Mobil at the current share price. My shares would provide me with annual dividend income of $2,560 as of this writing. If the company delivers the same performance as in the past (which I think there is a very good chance of, but I’ll discuss that more later), and I reinvest all dividends, my original investment will be worth a staggering $938,660 and pay an annual income of $24,000! Starting to wish you got into Exxon Mobil 20 years ago?
So Why Will This Great Performance Continue?
As the worldwide demand for energy increases, especially in developing economies, the demand for gasoline and crude oil will climb. As we all know, oil is a finite resource, and with increasing demand comes higher prices. World energy demand is expected to quintuple by 2050, according to industry analysts. We are closer to $10+ gas than everyone thinks, unfortunately. Well, unfortunately for everyone except oil company shareholders.