Dividend Aristocrats in Focus Part 5: Exxon Mobil Corporation (XOM)

Growth Prospects

Like Standard Oil, Exxon Mobil Corporation (NYSE:XOM) has kept a focus on pursuing the most valuable opportunities. That is why it has planted its flag in the premier oil and gas producing fields in the U.S., including the Permian Basin and Bakken fields.

ExxonMobil is the largest operator and driller in these two fields. The company has significantly reduced its operational costs to help maximize profitability while commodity prices remain low.

Source: ExxonMobil Second Quarter 2016 Earnings Presentation, Slide 19

Going forward, investors can expect ExxonMobil’s earnings to continue growing at a steady pace. Not only will the company benefit from a recovery in commodity prices, but it also will help ExxonMobil’s cash flow position simply by no longer requiring such high levels of spending.

For example, ExxonMobil has huge projects in Papua New Guinea and the Kearl oil field in the Canadian Oil Sands. The Papua New Guinea liquefied natural gas, or LNG, field is expected to produce approximately 6.9 million tons of LNG per year. The Kearl oil field is expected to produce nearly 500,000 barrels per day of diluted bitumen at full capacity. ExxonMobil estimates the field will last more than 40 years.

Once these projects are up and running, they will go from being a use of cash to being a source of cash. This will help ExxonMobil’s bottom line, even if commodity prices remain weak.

This is in contrast to the company’s 10 year growth numbers – which look bleaker than what investors should expect going forward. From 2005 through 2015, ExxonMobil’s earnings-per-share actually declined by 3.2% a year. Dividend payments per share grew by 9.7% a year over the same time period.

The reason earnings-per-share declined is due to the significant decline in oil prices. The volatility of ExxonMobil’s earnings-per-share make dividend growth a far better judge of the company’s long-term growth ability than its 10 year historical earnings-per-share growth.

Put another way, oil prices declined from around $140 a barrel in 2005 to under $50 a barrel in 2015. That type of decline is not going to happen again over the next decade – in fact, the reverse is more likely to occur.

Competitive Advantage & Recession Performance

ExxonMobil’s key competitive advantages are:

1. Its massive scale

2. Operational efficiencies

This provides the company with the financial strength to aggressively pursue growth opportunities that smaller drillers cannot.

In addition, ExxonMobil is an integrated company, meaning it has large upstream, downstream, and chemicals businesses. These businesses complement each other well and provide valuable diversification.