Exxon Mobil Corporation (NYSE:XOM)‘s stock is one of the most widely held securities in the investing world. That might have something to do with the fact it’s one of the largest publicly traded companies in the world. However, there’s a reason investors keep pouring money into the stock: It’s been a steady performer for decades.
In fact, the company has vastly outperformed the S&P 500 (S&P Indices:.INX) over the past decade as you can see from the following chart:
While past performance is nice to see, it tells us nothing of how Exxon Mobil Corporation (NYSE:XOM)’s stock will perform in the future. For investors interested in the stock there are two areas that you need to watch carefully. If ExxonMobil can continue to excel in these areas, then I don’t see any reason why its stock can’t continue to outperform.
Allocation of capital
Exxon Mobil Corporation (NYSE:XOM), thanks to high oil prices, generates billions of dollars of annual cash flow. While that’s a good problem to have, the company does need to spend those dollars wisely. While the company spends billions to invest in new oil and gas projects, it also sends a lot of cash back to its investors. The company pays a relatively small dividend, currently around 2.5%, however, where the company really excels is a buying back its own stock. Over the past decade ExxonMobil has bought back more over $200 billion in shares.
That’s important for investors because it means that you’d own a larger portion of the overall company by holding on to your shares. For example, Exxon Mobil Corporation (NYSE:XOM) has only grown its oil and gas production by about 1% annually over the past decade. However, buy repurchasing all that stock, ExxonMobil was actually able to grow its production per share by 48% over that same time frame. That’s a buyback with a real impact and one that few companies can match.
That’s not the only area where ExxonMobil excels. The company’s return on capital deployed has averaged just under 25% since 2008. That smashes the returns’ of Chevron Corporation (NYSE:CVX) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) which averaged 20% and 15%, respectively, over the same time frame. Exxon Mobil Corporation (NYSE:XOM) does this by choosing to invest in the projects that can deliver the greatest overall rates of returns. If the company can keep up this pace, its stock should continue to rise.