Exxon Mobil Corporation (NYSE:XOM) is the world’s largest publicly traded company and it continues to offer a lot of value to investors. In the last five years, the company returned $145 billion to its stockholders in the shape of dividends and share repurchases and the company will continue to reward investors that believe in it for years to come.
While ExxonMobil’s dividend yield is not very high, the company has raised its dividend rate by 59% in the last five years. The company’s current dividend yield is 2.7%, with a payout ratio of 25%.
The yield falls below many of the competitors such as Chevron Corporation (NYSE:CVX)‘s 3.2%, Royal Dutch Shell plc (ADR) (NYSE:RDS.A)‘s 5.3%, BP plc (ADR) (NYSE:BP)‘s 4.8%, and TOTAL S.A. (ADR) (NYSE:TOT)‘s 5.8%. The low payout ratio of 25% tells us that the company could increase its dividend rate by 50% to 60% without suffering in the process.
In 2012, Exxon Mobil Corporation (NYSE:XOM) earned $45 billion in profits as the company benefited from high oil prices, even though it suffered from low natural-gas prices. As a result of the high profits, the company was able to spend $40 billion on new projects such as exploration, production and partnerships.
ExxonMobil is known to have a very well diversified portfolio in addition to a well-disciplined approach to making investments. The company has oil and natural-gas projects going on in many different countries around the world. This is good because if something goes wrong in one of the countries where the company operates (for example, a war or natural disaster), it can offset its losses by focusing on other countries where it enjoys a presence.
In the next five years, Exxon Mobil Corporation (NYSE:XOM) plans on investing nearly $200 billion on new projects. For example, the company will invest a large sum in exploring and developing oil in the Russian arctic. Furthermore, the company will start more than 20 upstream projects between now and 2016, including the Kearl oil sands project in Canada and the liquefied-natural-gas project in Papua New Guinea.
Exxon Mobil Corporation (NYSE:XOM) is known for being really conservative and careful with its investments, and the company is famous for taking well-calculated risks. If ExxonMobil puts its money in a project, we can almost be certain that the project will bring the company a lot of money. When ExxonMobil commits putting $200 billion on new projects, we can almost be sure that the company expects to earn multiple times that money in the long run.
In the last 20 years, ExxonMobil delivered 12% in annual total returns for investors (this figure reflects share price appreciations and dividends combined). This compares well with the 8% enjoyed by the S&P 500 Index and 11% enjoyed by oil companies on average.
As the global economy grows rapidly, energy demand is likely to increase. As most of the high-quality energy resources are non-renewable, oil companies are pressured to find new reserves at all times. In 2012, Exxon Mobil Corporation (NYSE:XOM) was able to replace 115% of the oil it extracted from its proven oil reserves. This is very impressive for a company of ExxonMobil’s size.
Analysts expect ExxonMobil to earn $8.05 this year, followed by $8.26 next year, $8.40 in 2015 and $8.42 in 2016. I am effectively looking for a forward P/E ratio of 11 for this company. When analysts look at an oil company’s future earnings, they usually assume that oil prices will stay the same as they are today. If oil and natural-gas prices were to increase, many analysts would find themselves upgrading their estimates for ExxonMobil.
Exxon Mobil Corporation (NYSE:XOM) has many partnerships with other oil giants that will benefit both ExxonMobil and its partners. For example, ExxonMobil and Statoil ASA (ADR) (NYSE:STO) will jointly develop the Julia oil field that’s located in Gulf of Mexico. The oil field is expected to have 6 billion barrels of oil and the companies will be able to pull 30,000 barrels of oil everyday. The project is scheduled to start-up in 2016.
This should benefit Statoil ASA (ADR) (NYSE:STO) greatly, as the company is having some trouble with replacing the oil it extracts in its homeland country of Norway. This is not the first time the two companies are partnering, either. For example, the two companies have an ongoing partnership in Tanzania where they drill for oil and natural gas.
Exxon Mobil Corporation (NYSE:XOM) also aims at finding and developing oil north of Russia as it partnered with Russian oil giant Rosneft. If this partnership works out, ExxonMobil will be able to prove why it’s the most successful oil company in the world by extracting oil in a region from which it is incredibly difficult to extract oil. ExxonMobil is one of the few companies in the world that has the necessary expertise and the technology to accomplish this task; that’s why the Russian government had no choice but give ExxonMobil a chance.
Loads of trouble
Earlier, BP plc (ADR) (NYSE:BP) was given a shot by the Russian government, which ended up almost kicking the company out because BP had certain disagreements with the country. As a result of these problems, BP ended up selling its stakes in Russia to Rosneft. It looks as though companies like BP are having loads of trouble with local governments around the world, while ExxonMobil knows how to manage its relationships.
Another example is the oil spill in the Gulf of Mexico. Despite the fact that BP spent a large portion of its cash reserves to clean up the Gulf and repay the victims, the US government still doesn’t trust the company. Meanwhile, BP still has more than 2,000 ongoing lawsuits tied to the accident in the Gulf.
Recently, some of BP’s projects in Alaska came to a halt because the company couldn’t secure tax breaks that were crucial for its cost structure. If BP had better relations with the government, it could possibly secure tax breaks easier.
I like ExxonMobil and believe that the company is a sound investment with a proven past. More conservative investors will find a lot of value in this company whereas those looking for strong returns may look at smaller companies with more growth potential. If I was retired and looking for income, ExxonMobil would be one of the first places I’d be looking.
The article ExxonMobil Continues to Offer Value originally appeared on Fool.com and is written by Jacob Steinberg.
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