Investing a sum of $6,000 in ExxonMobil can potentially yield over $200 in yearly passive income.
Investing a sum of $6,000 in ExxonMobil can potentially yield over $200 in yearly passive income.
The oil and gas sector is filled with profitable companies that frequently fluctuate in payouts or reduce dividends during market-wide downturns. However, ExxonMobil (XOM 0.01%) stands out as an exception.
This multinational oil and gas giant, recognized as the largest U.S.-based company by market cap, recently increased its dividend for an impressive 42nd consecutive year, to $0.99 per share per quarter. Investing $6,000 in Exxon stock could result in over $200 in yearly passive income and potentially even more in the long term with ongoing dividend increases.
Exxon's stock price is currently barely down by 5% from its all-time high, but what sets it apart as an attractive dividend stock to purchase right now?
ExxonMobil is thriving
Exxon reported exceptional third-quarter 2024 results, including its greatest liquids output in more than 40 years. This enhanced production can be attributed to further advancements offshore Guyana and ExxonMobil's acquisition of Pioneer Natural Resources, which has expanded Exxon's already prosperous Permian Basin portfolio. As of now, Exxon has generated $18.89 billion in earnings and $26.35 billion in free cash flow (FCF) in 2024. Compared to the first three quarters of 2023, Exxon's daily average oil equivalent output has increased to 4.23 million barrels, versus 3.71 million barrels in the previous year.
The Pioneer acquisition assists in offsetting the consequences of lower oil and gas prices. Simultaneously, Exxon has reduced expenses and focused its investments on high-quality assets rather than quantity. Now, over half of its production comes from higher-margin areas such as offshore Guyana and the Permian Basin. Exxon has achieved $11.3 billion in structural cost savings since 2019, including $600 million in the recent quarter and $1.6 billion year to date. In the third-quarter announcement, Exxon mentioned that it is on track to achieve cumulative savings totaling $15 billion by the end of 2027.
Exxon is approaching the objectives outlined in its 2023 corporate plan. ExxonMobil unveiled several short-term and medium-term targets, such as $15 billion in cost savings through 2027, $23 to $25 billion in 2024 capital expenditures (capex), with over 90% of planned upstream capital investments between 2024 and 2028 expected to yield 10% or higher returns at Brent crude oil prices of $35 per barrel. At present, Brent prices hover around $75.
The following chart displays ExxonMobil's capex and Brent Crude Oil's spot price.
Observe that capex peaks just before oil prices start to decrease, then accelerates once oil prices rise again. Historically, Exxon's plan to continue expanding capex would have been worrying. However, Exxon now boasts a more effective and high-quality production portfolio compared to past years, and it is maintaining financial discipline in allocating capital.
Exxon has a robust financial position
Exxon concluded the quarter with $26.93 billion in cash and cash equivalents, $36.92 billion in long-term debt, and $42.6 billion in total debt – resulting in a net debt of only $15.67 billion. Exxon's net-debt-to-capital ratio, calculated as net debt divided by total stockholder's equity plus net debt, is now at a mere 5% – providing the company with a steady capital structure that doesn't rely heavily on debt.
Exxon's smart use of capital, high-margin asset base, moderate expenditure plans, and strong balance sheet form the basis for substantial capital returns to shareholders. Exxon is projected to distribute roughly $19 billion in buybacks in 2024 and approximately $16.5 billion in dividend payments – bringing its total capital return program to $35.5 billion. Exxon offers investors a yield of 3.3%, which is much more than an S&P 500 index fund's yield of around 1.3%.
ExxonMobil remains a viable buy
Even at subpar oil prices, Exxon continues to generate substantial FCF for long-term investments in oil, gas, and low-carbon projects – like carbon capture and storage – while also generously returning money to shareholders through buybacks and dividends.
Exxon's buyback plan provides an insightful indicator of the company's financial flexibility. With $19 billion in buybacks scheduled for 2024, Exxon is communicating to investors the amount of extra money it doesn't need for operating expenses, long-term investment, or dividends. If oil prices drastically decline, Exxon can simply stop buybacks without compromising its dividend record or business developments. This is a result of Exxon's diverse business model, structural cost reductions, efficient asset base, and technological advancements in oil and gas production.
In summary, ExxonMobil is currently a strong performer and has set clear targets for shareholders to monitor. On December 11, Exxon will host a virtual event, which might be an excellent opportunity for investors to hear updates on its corporate plan and medium-term goals.
Exxon's robust financial position allows it to allocate capital effectively, with plans to return approximately $19 billion to shareholders through buybacks in 2024. This strategic use of funds, along with a net-debt-to-capital ratio of just 5%, makes ExxonMobil an attractive option for investors seeking stable returns, as its dividend yield of 3.3% far surpasses the yield of an S&P 500 index fund.
Given ExxonMobil's strong financial position and it's potential for long-term growth, considering investing in Exxon stock could be a wise financial decision for those interested in generating passive income, as investing $6,000 in Exxon stock could result in over $200 in yearly passive income, with the potential for even more in the long term due to ongoing dividend increases.