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Oil Prices Weigh, but Exxon's Dividend Is Safe

Oil Prices Weigh, but Exxon's Dividend Is Safe
Securities In This Article
Exxon Mobil Corp
(XOM)

Allen Good: Exxon Mobil is currently trading at $77 per share, a nearly 15% discount to our $90 fair value estimate. At this level, its $0.82 quarterly dividend implies a yield of 4.3%. While lower than European peers Shell, Total, and BP, it's higher than U.S. peer Chevron at 3.9%. Historically, Exxon has yielded less than Chevron.

While the recent declines in oil prices have weighted on shares, we see the dividend as safe. Our estimate of its oil price break-even level, which is the level at which it can cover capital spending and dividends, is less than $50 per barrel. That is lower than current levels as well as our estimated midcycle prices of $60 per barrel.

Over the last 10 years, Exxon has grown the dividend about 8% per year, but growth in recent years has slowed with the decline in oil prices. While Exxon is unlikely to match peers' cash returns via share buybacks, we estimate it will continue to prioritize dividend growth. As such, we expect dividend growth to reaccelerate in the next few years with growth of midsingle-digits, closer to historical levels.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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