We recently compiled a list of the 10 Dividend Zombies and Kings with Longest Dividend Payouts. In this article, we are going to take a look at where Exxon Mobil Corporation (NYSE:XOM) stands against the other dividend stocks.
Last year, artificial intelligence (AI) was the main focus in the markets, driving tech stocks to the forefront. These stocks rose by nearly 56%, accounting for the majority of the market’s gains. However, these trends quickly lose popularity once they emerge. Experienced long-term investors understand a crucial principle: while chasing short-term investment trends can often lead to disappointment, committing to a long-term strategy can yield success. As AI-related companies drove the market upward, the valuations of high dividend-paying companies quietly declined in comparison. It is not about attractive valuations of dividend stocks, these stocks also offer diversification benefits and the potential for a growing income stream, especially if the Fed decides to lower interest rates, making them a strong investment option. These stocks become more attractive when companies have a solid history of consistently paying and increasing their payouts. Read our list of Best Dividend Kings to Buy for Safe Dividend Growth.
Dividend zombies are companies that have paid dividends to shareholders for at least 100 consecutive years whereas dividend kings are companies boasting 50 years of dividend growth. Dividend growers have shown strong performance over the years, often surpassing the overall market returns. The Dividend Aristocrats index, which tracks the performance of companies with 25 consecutive years or more, has outperformed the broader market since its inception in 2005, with lower levels of volatility. Historically, the index has captured 90% of the market’s upward movements while experiencing only 82% of its declines. Currently, the Aristocrats are trading at a price-to-earnings multiple that is more than 10% lower than that of the broader market. This discount level has historically preceded prolonged periods of superior performance by the Aristocrats.
Since the end of 1989, there have been six calendar years where the broader market experienced negative performance. In each of these years, the Dividend Aristocrat index surpassed the performance of the broader equity benchmark by an average of 13.28%. Remarkably, the aristocrats delivered positive total returns in three of those years.
Given investors’ preference for dividend stocks, companies listed in the broader market indices are consistently increasing and sustaining their dividend payments. In the first quarter of 2024, the S&P’s main index distributed $151.6 billion in dividends, compared to $146.8 billion in Q1 2023. There were 796 reported dividend increases in the first quarter, totaling $22.7 billion, up from $19.7 billion in the prior-year period.
The impressive returns of dividend growers clearly demonstrate their strong performance. In this article, we will take a look at dividend zombies and dividend kings to invest in.
Our Methodology:
For this list, we selected companies that have paid dividends for over 100 years and also have strong dividend growth histories. Some of these companies are dividend kings, which means that they have raised their payouts for 50 years or more. We also considered the hedge fund sentiment around each stock, according to Insider Monkey’s database for Q1 2024. The stocks are ranked in ascending order of the consecutive years of dividend payments. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Aerial view of a major oil rig in the middle of the sea, pumping crude oil.
Exxon Mobil Corporation (NYSE:XOM)
Consecutive Years of Dividend Payments: 142
Exxon Mobil Corporation (NYSE:XOM) ranks third on our list of the best dividend zombies. The American energy company benefits a lot from expanding its production capacity. The company recently completed the acquisition of Pioneer Natural Resources, significantly increasing its presence in the Delaware and Midland basins to 1.4 million acres. In the first quarter of 2024, the company surpassed 600,000 barrels of oil equivalent per day in Guyana and finalized the investment decision for its sixth major development project. Guyana is a crucial exploration area for the company, offering lower oil production costs of $25 to $35 per barrel. This cost efficiency is particularly profitable for Exxon Mobil Corporation (NYSE:XOM) because of its larger size and scale compared to other oil exploration companies.
Exxon Mobil Corporation (NYSE:XOM) has strengthened its balance sheet thanks to several years of profit. The company generated over $10 billion in free cash flow in the first quarter of 2024, beating analysts’ estimates by 21%. Its operating cash flow for the quarter came in at $14.7 billion. A $10 billion boost to its cash flow is an impressive return on the company’s $94 billion in capital expenditures since 2019. Despite reducing capital spending by 8.5% compared to the previous year, the company still returned $6.8 billion to shareholders through dividends and share repurchases. It also spent $5.8 billion on capital and exploration expenditures. This shareholder return and solid cash generation make Exxon Mobil Corporation (NYSE:XOM) one of the most reliable options for income investors. Additionally, the company has a minimal debt of around $40 billion and a free cash flow of $33 billion. With a debt-to-EBITDA ratio of 0.58, debt is not a concern for shareholders. The stock is trading at a forward P/E of 12.08, which appears cheap considering the company’s cash position, recent earnings, and growth outlook.
Madison Investments highlighted the strengths of Exxon Mobil Corporation (NYSE:XOM) and its outlook in its Q1 2024 investor letter.
“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…” (Click here to read the full text)
Exxon Mobil Corporation (NYSE:XOM) offers a quarterly dividend of $0.95 per share and has a dividend yield of 3.40%, as of June 20. The company has been paying uninterrupted dividends to shareholders for the past 142 years and its dividend growth streak spans over 41 years. It is among the dividend zombies on our list.
Exxon Mobil Corporation (NYSE:XOM) was included in 81 hedge fund portfolios at the end of Q1 2024, compared with 85 in the previous quarter, according to Insider Monkey’s database. The stakes held by these hedge funds have a consolidated value of over $5.5 billion. With over 26.4 million shares, Fisher Asset Management was the company’s leading stakeholder in Q1.
Overall XOM ranks 3rd on our list of the dividend zombies and kings with longest dividend payouts. You can visit 10 Dividend Zombies and Kings with Longest Dividend Payouts to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of XOM as an investment, our conviction lies in the belief that deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is as promising as XOM but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.