About Exxon Mobil
Formed from the 1999 union of Exxon and Mobil, the company is the second largest publicly traded entity in the world (they were actually first for a brief period recently – thanks Apple Inc. (NASDAQ:AAPL)!). Exxon Mobil has proved oil and gas reserves of 24.9 billion boe (barrels of oil equivalent) and produces 4.5 million barrels per day.
The vast majority of the company’s revenue (80%) comes from exploration and production, with the remainder split between refining/marketing and chemicals. Exxon Mobil Corporation (NYSE:XOM) serves customers in over 200 countries, and the makeup of its revenue is not quite what I would have expected. Surprisingly, the largest share of the company’s revenue comes from Africa (25%) with the remaining three-fourths coming from the U.S. (21%), Europe (20%), Asia (20%), Canada/South America (10%) and Australia/Oceana (3%). A more internationally diverse revenue stream is hard to come by in any other company in the market.
Exxon plans to invest approximately $37 billion per year in oil and gas projects. By 2016 the company anticipates adding 1 million boe/day of capacity, and they are expecting to begin nine major oil and gas projects within the next two years.
Not So “Boring” After All
To illustrate the long-term investability of Exxon Mobil, consider the following facts: From the 20 year period between 1992 and 2012, the share price has climbed 9.7% on average. Note that this is just referring to share price, not yield or any other returns. This is fantastic growth for any investment, and for it to be sustained over such a long period of time (including two major recessions) is truly remarkable.
As far as dividends go, Exxon Mobil is not a high-yielder as compared to some other long-term favorites, however I believe that more important than that is the company’s record of increasing the dividend, which Exxon Mobil has done as well or better than virtually anyone else (see chart).
Just a thought: Although Exxon Mobil’s dividend is a bit lower than most income investors would like, at around 2.6%, this could still provide investors with more income once they get to retirement age than most of the 4-5% yielders.
Let’s say that I make a hypothetical $100,000 investment into Exxon Mobil at the current share price. My shares would provide me with annual dividend income of $2,560 as of this writing. If the company delivers the same performance as in the past (which I think there is a very good chance of, but I’ll discuss that more later), and I reinvest all dividends, my original investment will be worth a staggering $938,660 and pay an annual income of $24,000! Starting to wish you got into Exxon Mobil 20 years ago?
So Why Will This Great Performance Continue?
As the worldwide demand for energy increases, especially in developing economies, the demand for gasoline and crude oil will climb. As we all know, oil is a finite resource, and with increasing demand comes higher prices. World energy demand is expected to quintuple by 2050, according to industry analysts. We are closer to $10+ gas than everyone thinks, unfortunately. Well, unfortunately for everyone except oil company shareholders.
Alternatives
There are many big oil companies, but I wholeheartedly believe that Exxon Mobil Corporation (NYSE:XOM) is the best for a long-term investment. For comparison sake, I’d like to take a quick look at two other favorites of mine, Chevron Corporation (NYSE:CVX) and BP plc (ADR) (NYSE:BP).
Chevron is the second largest U.S. oil company and the fifth largest publicly traded oil company in the world, with production of approximately 2.6 million barrels per day. Chevron pays a slightly higher dividend yield than Exxon Mobil (3%) and also raises its dividend like clockwork. The main reason I prefer Exxon Mobil is their more aggressive plans to expand capacity. In contrast, Chevron is targeting production growth of 1% annually through the end of 2014, and 4-5% in 2014-2017. As mentioned before, Exxon is planning to add 1 million boe/day of capacity by 206, which would be over a 15% increase from current levels.
BP, like Exxon Mobil Corporation (NYSE:XOM), does have aggressive expansion plans; however there are a few red flags when it comes to its long-term investability. First, I would not consider putting my savings into BP until the Deepwater Horizon mess is completely behind them. I realize that the company has fulfilled most of its financial obligation, however certain aspects of the catastrophe still linger.
Also, the company has the most debt on its balance sheet of any of the three profiled here. While Exxon Mobil and Chevron both have positive net cash positions (more cash than debt), BP has $20 billion in cash and almost $49 billion in debt on its balance sheet. I would like to see measures in place to reduce the debt before investing.
Conclusion
While I would call all three of these companies “good” investments, Exxon Mobil has proven itself to be a great one. Its track record of consistent growth and shareholder-friendly practices (like its share buyback) is unmatched. With the rising demand for energy, oil and gas prices aren’t going to have a sustained drop anytime soon, and the profits of Exxon Mobil should rise right along with it.
The article One of the Best Long-Term Investments There Is originally appeared on Fool.com.
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