Exxon Mobil Corporation (XOM) Outshines Peers in Prioritizing Longevity

Page 1 of 2

Between Exxon Mobil Corporation (NYSE:XOM)Chevron Corporation (NYSE:CVX) and BP plc (ADR) (NYSE:BP), which company presents the best value for income-oriented investors? This is arguably the most recurrent debate in income-investment circles.

Exxon Mobil CorporationAs an income investor, your satisfaction is not drawn from the hefty paycheck you receive at the end of every three-month period, but rather the repeated receipt of similar, or bigger, paychecks moving forward. You’d want to establish a risk-free portfolio which, even in your golden years, can be inherited by your grandchildren. If this is what you want, I’d recommend Exxon Mobil Corporation (NYSE:XOM) over Chevron Corporation (NYSE:CVX) or BP plc (ADR) (NYSE:BP).

Although all three companies present commendable income opportunities for investors, ExxonMobil goes a step further to offer security and peace of mind. With Exxon Mobil Corporation (NYSE:XOM), you can sit back and enjoy your retirement without having to constantly tap away at some device for news updates and stock trends.

Don’t BP and Chevron offer better yields?

On the face of it, BP and Chevron offer a better deal for income investors. BP currently offers a yield of around 5.3%. Chevron, on other hand, offers a yield of about 3.2%. Exxon Mobil Corporation (NYSE:XOM) trails the pack with its 2.8% yield. This essentially means that BP and Chevron investors are set to gain more (not in actual amount) when stacked against ExxonMobil shareholders. But is this all?

Don’t forget to read the fine print

1. Exxon Mobil Corporation (NYSE:XOM) offers a lower yield but generates more cash flow than Chevron (close to two times more). If anything, Chevron should have a lower yield than ExxonMobil, but it does not. Doesn’t this mean that Chevron is accumulating debt, or worse, tapping into its coffers in order to maintain its yield?

In 2012, Chevron’s free cash flow came in at $7.9 billion compared with Exxon’s $21.9 billion. This contrast suggests that Chevron should reduce its yield slightly and perhaps focus on another strategy to create shareholder value, like increased share buybacks. It can perhaps increase its current share buyback of approximately $1.3 billion.

2. How else do Chevron and ExxonMobil enhance shareholder value? Stock buybacks? Yes, they do have these. But as it is, ExxonMobil presents the best stock-buyback program when compared with Chevron and BP.

In 2012, it bought back $20.8 billion, compared with BP’s much lesser $4.1 billion. Even if BP buys back $8 billion as earlier announced, it will still trail ExxonMobil.

3. Is BP’s future that certain? As far as its stock is concerned, a downside could come at anytime. In addition to the weak oil prices that are hurting its margins, its court battles are also placing an equally significant strain on its stock.

By the fall of 2012, the oil big wig had spent a whopping $42.2 billion in meeting the costs and fines associated with the infamous 2010 Gulf of Mexico oil spill. However, that was merely the beginning. BP is still in court battling more than 160,000 claims. I believe that this court case, coupled with risks of thinning margins, beg the question:  Is BP’s dividend yield sustainable in view of the looming uncertainty? I guess not.

ExxonMobil always has one foot in the future

Despite the innumerable challenges in the energy sector, ExxonMobil always manages to get through. It does this because it always has one foot in the future.

Let’s go back to mid 2010 when ExxonMobil closed the $31 billion XTO Energy deal. Although the closure of the deal provided more traction for ExxonMobil in the natural-gas sector, it was met with criticism in view of the weak forecasts for natural gas at the time. Indeed, natural-gas prices later hit unprecedented lows in mid 2012. This trend, however, changed and natural-gas prices have since trended upward. In fact, there are heading toward healthy levels.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!