Will Exxon Mobil Corporation (XOM) Help You Retire Rich?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won’t just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

As the company with the biggest market capitalization in the Dow Jones Industrials Average by a wide margin, Exxon Mobil Corporation (NYSE:XOM) has a commanding presence over the oil industry and the entire U.S. stock market. But despite its size, Exxon can’t change a basic rule of the energy industry: Once you take oil out of the ground, it becomes increasingly difficult to get as much production from the same wells. Can the oil giant get over declining production trends by capitalizing on new opportunities? Below, we’ll revisit how ExxonMobil does on our 10-point scale.

Exxon Mobil Corporation (NYSE:XOM)

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts’ growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won’t make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock’s share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won’t fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time — as long as it doesn’t jeopardize the company’s financial health.

With those factors in mind, let’s take a closer look at ExxonMobil.

Factor What We Want to See Actual Pass or Fail?
Size Market cap > $10 billion $397 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 4 years Pass
Free cash flow growth > 0% in at least four of past five years 3 years Fail
Stock stability Beta < 0.9 0.51 Pass
Worst loss in past five years no greater than 20% (13.1%) Pass
Valuation Normalized P/E < 18 8.80 Pass
Dividends Current yield > 2% 2.6% Pass
Five-year dividend growth > 10% 9.7% Fail
Streak of dividend increases >= 10 years 30 years Pass
Payout ratio < 75% 22% Pass
Total score 8 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at ExxonMobil last year, the company has given back the point it gained from 2011 to 2012, as its free cash flow contracted last year. The stock has only managed to pick up about 5% in the past year as pressure in the energy industry has affected Exxon harder than you might expect.

In its most recent quarter, Exxon managed to resume its growing ways, with profit rising 6%. But Exxon has suffered from production decreases that put the oil giant at a three-year low, lagging behind Chevron Corporation (NYSE:CVX)‘s modest production growth in the same quarter.

Part of that disparity has to do with the depths — literally — to which Chevron has been willing to go to find new plays. With a huge number of offshore deepwater oil finds in recent years, Chevron has braved the deeps to get them producing. Exxon likely needs to become a bigger player in the deepwater drilling space in order to get production moving back in the right direction.

Also, Exxon has had to defend its decision to remain an integrated oil company rather than spinning off portions of its business. Once they were set free from their exploration-and-production-focused parents, refinery companies Phillips 66 (NYSE:PSX) and Marathon Petroleum Corp (NYSE:MPC) both soared in value, taking full advantage of extraordinarily high spreads for refined products to maximize profits. Yet recently, Exxon’s retention of its downstream segment helped it overcome losses from its E&P activities. In some ways, remaining integrated keeps Exxon more stable than it would be if separated into component parts.

For retirees and other conservative investors, ExxonMobil has a solid dividend and a valuation that’s hard to argue with. Yet you have to be comfortable with the fact that the company has at least some prospects for growth if you want to justify adding Exxon to your retirement portfolio.

The article Will ExxonMobil Help You Retire Rich? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!