Exxon Mobil Corporation (NYSE:XOM) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Exxon Mobil's shares before the 14th of November in order to receive the dividend, which the company will pay on the 11th of December.
The company's next dividend payment will be US$0.95 per share, on the back of last year when the company paid a total of US$3.80 to shareholders. Looking at the last 12 months of distributions, Exxon Mobil has a trailing yield of approximately 3.7% on its current stock price of $102.93. If you buy this business for its dividend, you should have an idea of whether Exxon Mobil's dividend is reliable and sustainable. So we need to investigate whether Exxon Mobil can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Exxon Mobil
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Exxon Mobil paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Exxon Mobil generated enough free cash flow to afford its dividend. Fortunately, it paid out only 39% of its free cash flow in the past year.
It's positive to see that Exxon Mobil's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Exxon Mobil's earnings per share have been growing at 18% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Exxon Mobil has lifted its dividend by approximately 5.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Exxon Mobil is keeping back more of its profits to grow the business.
To Sum It Up
Should investors buy Exxon Mobil for the upcoming dividend? We love that Exxon Mobil is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in Exxon Mobil for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Exxon Mobil that we recommend you consider before investing in the business.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
What are the risks and opportunities for Exxon Mobil?
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas in the United States and internationally.
Rewards
Trading at 29.4% below our estimate of its fair value
Risks
Earnings are forecast to decline by an average of 4.3% per year for the next 3 years
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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2023-11-09 10:23:48Z
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