Here's What We Like About Exxon Mobil's (NYSE:XOM) Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Exxon Mobil Corporation (NYSE:XOM) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Exxon Mobil's shares before the 13th of February to receive the dividend, which will be paid on the 10th of March.
The company's next dividend payment will be US$0.91 per share. Last year, in total, the company distributed US$3.64 to shareholders. Looking at the last 12 months of distributions, Exxon Mobil has a trailing yield of approximately 3.2% on its current stock price of $114.92. 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 check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Exxon Mobil
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Exxon Mobil paid out a comfortable 27% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Exxon Mobil's earnings have been skyrocketing, up 24% per annum for the past five years. Exxon Mobil is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Exxon Mobil has delivered 4.8% dividend growth per year on average over the past 10 years. 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.
The Bottom Line
From a dividend perspective, should investors buy or avoid Exxon Mobil? Exxon Mobil has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
In light of that, while Exxon Mobil has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 2 warning signs with Exxon Mobil (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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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