Big Oil giant Exxon Mobil (XOM) needs no introduction.
The $338-billion company is one of the most prominent crude oil and natural gas producers in the world. Besides for its dominance in the energy sector, Exxon Mobile is better-known amongst income-oriented investors for its excellent dividend track record.
In fact, the company is a constituent of the Dividend Aristocrat index, which comprises S&P 500 companies that have hiked dividend payments each year for at least 25 years.
While the company had a hard time during the first stages of the pandemic, with investors fearing a potential dividend cut, Exxon made it out ok and is currently enjoying quite strong sector tailwinds along, with the rest of its peers.
In my view, Exxon Mobil remains a strong dividend pick ahead, especially with oil prices on the rise. However, with the stock undergoing a strong rally over the past quarter, I believe Exxon’s upside going forward could be rather limited.
Recent Results
Exxon just reported its Q4-2021 financial results, with performance coming in quite strong.
Production volumes in the Permian rose nearly 100,000 oil-equivalent barrels per day in 2021, with enhanced capital efficiency.
Exxon’s Downstream segment surprised investors with excellent developments. Refining throughput in Q4 was the highest since 2013, growing 2% from Q3, letting Exxon capture the advantage of improved industry margins. The Lubricants segment also achieved record earnings, as powerful reliability performance allowed for a full capture of solid
basestocks margins.
Exxon’s Upstream division also posted strong numbers due to higher oil price levels. Average realizations for crude oil grew 8% quarter-over-quarter, while natural gas realizations grew 63% sequentially.
As a result, profitability was quite strong, with Exxon posting a quarterly adjusted EPS of $2.08 versus a loss of ($4.70) in the comparable period last year.
Is the Dividend Safe?
Exxon is a proud member of the Dividend Aristocrat Index, with its dividend historically incentivizing investors to hold the stock.
The company hiked its quarterly dividend by 1.1% to $0.88 last October, saving its Dividend Aristocrat Status last minute after having paid ten consecutive $0.87 quarterly dividends previously.
Despite the tiny size of the increase, I believe it’s for the better, as Exxon gets to reserve liquidity while still making shareholders happy. At its current annual payout rate of $3.52, the dividend seems well-covered, based on FY-2021 EPS of $5.39. That said, investors need to be wary, as last year’s results benefited from a very favorable environment for energy companies in the second half of the year.
Wall Street’s Take
Turning to Wall Street, Exxon Mobile has a Moderate Buy consensus rating, based on nine Buys and nine Holds assigned in the past three months. At $83.00, the average Exxon Mobile price target implies 1.95% upside potential.
Conclusion
Exxon Mobil has made a great comeback from its early pandemic levels. The company is printing cash at the current commodity price levels, while the dividend appears to be well-covered.
That said, Exxon’s upside could be limited, following the stock’s rally over the past year. While the stock is seemingly trading at a P/E of around 15 based on FY-2021 results, commodity prices could easily retreat in the medium term, leaving the stock hovering near overvalued territory. I am neutral on the stock.
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