We recently published a list of 15 Best Dividend Stocks To Buy and Hold. In this article, we are going to take a look at where Exxon Mobil Corporation (NYSE:XOM) stands against other best dividend stocks to buy and hold.
In recent years, many investors have shifted their focus from dividend-paying stocks to high-growth secular-themed stocks that typically don’t offer dividends. However, history shows that investors shouldn’t overlook dividends. According to estimates by AGF Investments, the long-term case for dividend-paying equities is strong: if a dollar was invested in the broader market Index in 1927 without reinvesting dividends, it would be worth $243 today. In contrast, that same dollar with dividends reinvested would be worth $3,737.
Because of this earnings and income potential, income investors often turn to dividend stocks when the market shifts. While these stocks may not be keeping pace with the broader market, analysts remain optimistic about their future prospects. A report from J.P. Morgan indicated that global equities are approaching a notable period of dividend growth, not just due to a cyclical rise in payouts but also because of a long-term increase in dividend momentum. Over the past 20 years, global dividends per share have grown at an annual rate of 5.6%, but analysts predict this growth will accelerate to 7.6%. The main factor driving this increased growth is the low starting point of payout ratios (dividends as a proportion of earnings). During the Covid pandemic in 2020, many companies cut their dividends, leading to a 12% drop in global dividends, which was a steeper decline than during the Global Financial Crisis. This was a rational response to an uncertain environment with unpredictable effects and duration.
READ ALSO: 10 Most Promising Dividend Stocks According to Hedge Funds
However, equity markets rebounded strongly as global earnings soared, primarily driven by Big Tech and, more recently, AI. Since dividends are typically determined by conservative boards and management, they tend to lag behind earnings during significant earnings surges. As a result, dividend payout ratios are now near their lowest levels in 25 years, meaning companies are paying out less compared to historical averages. Simply returning to a more typical payout level could contribute an additional 2% annual growth over the next five years. This isn’t just a theoretical scenario—global dividend growth has already started to exceed earnings growth in seven of the past eight quarters, as reported by J.P. Morgan.
While recent market gains have largely been driven by a small group of non-dividend-paying companies, this is starting to shift. In 2024, many big tech companies initiated their dividend policies, highlighting the importance of returning capital to shareholders and positioning dividends as a complement to share buybacks. The report highlighted that although the dividend yields from these tech giants are initially modest, the total amount they are committing to dividends is significant—$17 billion collectively over the next year. More importantly, these actions send a strong signal to the market.
Income-focused investors have increasingly turned their attention to dividend income, making it a more prominent part of personal earnings. A report by S&P Dow Jones Indices reveals that dividend income has risen from 2.68% in Q4 1980 to 7.88% in Q2 2024, demonstrating its growing importance as an income source. The report further highlighted that since 1936, dividends have accounted for over a third of total equity returns, with the rest coming from capital gains.
Our Methodology
For this list, we scanned through various credible sources, including Business Insider, Forbes, Morningstar, and Barron’s, and identified their consensus picks from their recent articles. Next, we sorted these companies based on the number of hedge funds in Insider Monkey’s database that owned stakes in these companies, as of Q3 2024.
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)
Number of Hedge Fund Holders: 86
Exxon Mobil Corporation (NYSE:XOM) is an American oil and gas company that is engaged in the exploration, production, refining, and distribution of petroleum products. In the fourth quarter of 2024, the company reported revenue of $83.4 billion, which fell by 1.1% from the same period last year. Since 2019, the company has achieved a cumulative $12.1 billion in Structural Cost Savings, surpassing the accomplishments of its competitors and more than compensating for inflation and growth. Its return on capital employed was the industry leader for the year, reaching 12.7%, and its five-year average stood at 10.8%.
Exxon Mobil Corporation (NYSE:XOM)’s cash position also came in strong in FY24. The company generated $55 billion in free cash flow, marking its third-best year in the past decade. Its free cash flow for the year amounted to $36.2 billion. During the year, the company returned $16.7 billion to shareholders through dividends. It also intends to extend its annual $20 billion share repurchase program until 2026.
Exxon Mobil Corporation (NYSE:XOM) remains a leading player in the global fossil fuel industry while also increasing its investments in low-carbon energy. As part of its 2030 strategy, it plans to allocate up to $30 billion towards low-emission projects from 2025 to 2030. Additionally, the company has secured the largest offshore carbon dioxide storage site in the US through an agreement with the Texas General Land Office. It is also making progress on developing the world’s largest low-carbon hydrogen production facility, with an expected capacity of up to 1 billion cubic feet of hydrogen per day.
On January 31, Exxon Mobil Corporation (NYSE:XOM) declared a quarterly dividend of $0.99 per share, which was in line with its previous dividend. Overall, the company has been growing its payouts for 42 consecutive years, which makes XOM one of the best dividend stocks on our list.
Insider Monkey’s database of Q3 2024 indicated that 86 hedge funds owned stakes in Exxon Mobil Corporation (NYSE:XOM), compared with 92 a quarter earlier. These stakes have a total value of nearly $7 billion. First Eagle Investment Management was one of the company’s leading stakeholders.
Overall, XOM ranks 2nd on our list of best dividend stocks to buy and hold. While we acknowledge the potential for XOM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
