There has been much prognostication on the Exxon Mobil (XOM) dividend both here at Seeking Alpha and within the financial press. All that spilled ink is no surprise given the dividend yield has crossed into double digits, long heralded as a sign that at the payout as unsustainable – or at least according to market consensus. Why so much interest? Correctly calling a dividend cut on what still is a cornerstone income position for many retirees would certainly win any analyst or financial blogger some internet brownie points. Nearly all do not have the conviction to put capital at risk on that call by being short.

As something of a dividend cut soothsayer myself – Vermilion Energy (VET) and Occidental Petroleum (OXY) were two public energy bearish calls this year from me that explicitly called prior fat payouts unsustainable – I’d relish in the opportunity to make that call here. Problem is, I don’t think you can. While bulls certainly have had blinders on when it comes to both operational problems at Exxon Mobil as well as the relative valuation compared to direct comps, to me it seems like the bears are well ahead of themselves in forecasting a cut.

Why Dividends Get Cut

For any analyst or independent investor to make accurate (and timely) dividend cut calls, there are two (very) simple catalysts that have to be watched out for. This is quite broad brush, but readers will find that Exxon Mobil does not really check any of these boxes.

Before we get started here, yes Exxon Mobil has burned through quite a bit of cash this year. My working model for the supermajor calls for about $17.0B in operational cash flow (inclusive of a working capital hit) in 2020 against $19.2B in capital expenditures and $14.8B in dividends.

Exxon Mobil (XOM) has dropped below $35 giving it a current dividend rate of over 10%. That is a substantial distribution but not the main reason to buy because the dividend may indeed be cut as I discussed here “Exxon Mobil Needs Some Good News To Avoid A Dividend Cut”.

I have also written about Exxon when I thought it was overpriced “No Ha-Ha At Doha: Saudi Arabia Raises The Oil-Price Ante, And Exxon’s Credit Takes A Hit” and again when I thought it was a buy “Exxon Mobil: I Told You To Sell At $88, Now I’m Telling You To Buy At $48”.

I was certainly too early when I wrote that last article as Exxon has continued to drop over the last few months. But now at less than $35, I have come to the conclusion (again) that this really is the time to buy.

Here are 5 reasons I think it is time to buy Exxon regardless of what happens to the dividend.

1. The price is below $35 for the first time in 15 years

Well, not counting the 2020 COVID response when it dropped to $31. I see that as an aberration.

Source: macrotrends

That is a long, long chart and would suggest it is up from here assuming, of course, that oil prices recover at least to some degree.

2. How much of the price decline was due to removal from DJIA?

If we look at the price action since the announcement that Exxon was being removed from the Dow Jones Industrial Average (DJIA), we see a strong trend down.

So, how much of this downward trend was due to removal and how much due to oil prices?

As the chart below shows, the price of oil has remained relatively steady while the stock

  • Chevron has overtaken Exxon in market value. 
  • Exxon was the largest company in the world seven years ago. 
  • Chevron’s market value has also fallen substantially in the last year, driven down largely by the collapse in oil prices. 
  • A number of events pushed down Exxon’s stock including reporting two consecutive quarters of loss and getting booted from the Dow Jones Industrial Average. 
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Chevron surpassed Exxon in market value Wednesday, becoming the largest oil company by market cap in the US. This is the first time Chevron has been in the top spot since at least 1980, according to Bloomberg data.

The milestone is more about Exxon’s decline than it is about Chevron’s ascent, because the entire oil industry has been battered by a fall in crude prices sparked by the coronavirus pandemic.

Exxon’s market value is down more than 50% since the start of the year, and stands at $141.1 billion. Chevron’s value has fallen about 40% to $141.3 billion. The broader S&P 500 is up more than 5% in the same period.  

Exxon’s stock has faced pressure from a number of events including its ousting from the Dow Jones Industrial Average in August and two consecutive quarters of loss. The company also has a high dividend yield, signaling that it may be forced to cut its prized payout in the coming weeks.

“Dividend sustainability remains top of mind at XOM,” Goldman Sachs analysts said in a late-September note, “with mixed views on how the company will ultimately move forward on the dividend.”  

Exxon stock

Exxon’s stock has fallen more than 50% from the start of the year.

Markets Insider


While Chevron has faced similar challenges — it reported an $8.3 billion loss in the second quarter — some

Oil behemoths Chevron Corp. (ticker: CVX) and Exxon Mobil Corp. (XOM) have struggled in 2020 as the beaten-down sector faced many challenges as demand shrunk rapidly this spring, tanking crude oil prices.

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The glut in oil supply remains high and recovery remains weak as many businesses stay closed and jet fuel demand continues historically low. Consumption rates rebounded during the summer, but the global oversupply of oil compounds the industry’s problems. Oil prices dipped again recently and are hovering around $40 a barrel.

Both oil companies are good buys for their traditional base of investors who seek yield and dividends, says Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business.

“Large integrated majors have a greater portion of retail investors than other oil stocks,” he says.

Exxon’s current dividend yield is about 10.2%, while Chevron’s is around 7%.

Exxon Exits Dow

A blue-chip stock, Exxon was removed from the Dow Jones Industrial Average on Aug. 31 after being on the benchmark index since 1928, when it was known as Standard Oil. Exxon was removed after Apple (APPL) chose to split its stock.

Exxon has “probably been beat down a little more in terms of its price due to its exit from the Dow Jones,” Bullock says. “Over the long run, it shouldn’t make a great deal of difference but may offer slightly more upside on the share price.”

Chevron is now the only energy company in the Dow, which is composed of 30 large U.S. companies from various sectors.

While it is prestigious for a company to be included in the Dow, since the energy sector is now a smaller portion of the S&P 500, the removal of an energy stock from the benchmark was inevitable for the current state of

Texas-headquartered Oil and Gas company Exxon Mobil Corporation (NYSE: XOM) announced plans on Monday to cut jobs across its affiliates in Europe. The country-specific impact of the layoffs is still uncertain, and the decision would be based entirely on the company’s presence in the local markets and the prevailing market conditions.

In the last six months, Exxon stock has dropped close to 17%, and approximately 52% on a year-to-date basis.

What Happened: Exxon’s plan to reduce staff is driven by cost competitiveness and it estimates up to 1,600 employees across Europe could face the ax by the end of next year. According to the Financial Times, this represents more than one-tenth of its total headcount in the European region.

In an earnings guidance shared last week, the company said it expected to post anywhere between a loss of 68 cents and a profit of 7 cents in the current quarter, primarily due to the impact of the COVID-19 pandemic.

Why Does It Matter: The Oil and Gas sector has suffered a severe drop in demand since the pandemic outbreak and FT reported that petroleum producers have taken significant steps to cut costs.

Last week, Royal Dutch Shell Plc (NYSE: RDS-A) announced plans for a major business overhaul which could lead to 10% job cuts, according to Reuters. By the end of 2022, Shell might lay off 7,000 to 9,000 staff, which includes around 1,500 employees quitting voluntarily.

In June CNBC reported that the British oil company BP Plc (NYSE: BP) would layoff 10,000 employees by the end of the year i.e. approximately 15% of its workforce.

Price Action: Exxon stock closed 2.30% higher at $33.74 on Monday.

Photo by Mike Mozart on Flickr

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