A confederacy of dunces. If he were still alive, John Kennedy Toole would surely admire the coverage in the financial media on Exxon Mobil (XOM) . Going into yesterday's dividend announcement, the CoD seemed to miss the fact that Exxon had maintained its dividend in its April announcement, which is typically the time of year when Exxon sets its dividend rate for the following four payments. But those always-alert sleuths with the exception of one (yeah, it was me) failed to note that Exxon had maintained its $0.87 per share dividend in April 2020. If they were going to cut the dividend, they would have done it already.
You could spin yesterday's announcement negatively, as Reuters and many others did, and note that Exxon was not raising its dividend in 2020 (you should have figured that out in April.) Or you could say "holy *#$*" this company is STILL going to pay a dividend that produces a yield north of 10%. That's a huge premium to the S&P 500, which multpl.com has at a current dividend yield of 1.78%.
Exxon is a true yield play in a market which has very few. Could they have scrounged through the cash cushions in Irving, Texas in April and found enough to go to $0.88 from the current rate of $0.87 and stopped those idiotic articles from being written? I suppose so, but in the era of Covid-19 financial conservatism is warranted.
But is paying a dividend a wise idea in a quarter in which the consensus (I am using WSJ figures here) sits at a loss of $0.26 with a range from breakeven to a loss of $0.45 per share? As the motto of my firm states, "cash flow never lies."
Excluding a weird, non-cash cash adjustment for higher commodity pricing, Exxon generated $5.9 billion in after-tax cash flow in the second quarter. That easily covered the $3.7 billion Exxon paid out in dividends in the second quarter, and I expect a similar ratio to be revealed when 3Q earnings are released Friday morning.
Being a long-term Exxon shareholder is not like living in a world filled with unicorns, flowers and candy. Trust me. But the real returns my clients and I have realized from collecting and reinvesting Exxon's dividends have allowed us to basically own the stock for free. Counting the fourth quarter's dividend (to be paid on December 10th to shareholders of record as of November 12th), XOM will have paid out $33.18 in dividends since the beginning of 2008. Yet even today's "jump" in the share price has only brought XOM to $32.26.
So we're playing with house money here. Exxon made over $1.2 billion in its hedge book in the first quarter of 2020. Though the company really should be losing money on hedges every quarter as it did in 2Q20, it is reassuring to know that this company does protect itself against commodity price declines.
Patient investors will be rewarded, even if owning XOM is never "cool" again as it was in the days of their Harley-riding, empire-building ex-CEO, Rex Tillerson.
If you choose not to invest in companies that produce hydrocarbons for environmental reasons, I respect that choice. That said, if you own stocks in tech companies like Twitter (TWTR) (did Jack Dorsey really think going in front of Congress yesterday looking like The Love Guru was a good idea?) whose platforms are used to spread a non-stop flow of hate speech and misinformation, and to promote acts of terrorism and political violence, then you probably shouldn't be too self-righteous about avoiding oil stocks.
Exxon has been around in some form since John D. Rockefeller founded Standard Oil in 1870. I certainly understand that the next 150 years will be different than the preceding 150. XOM will never again be viewed as a growth stock. That's fair, and there is nothing more pathetic than an oil company trying to be "woke."
But there are cash flows to be harvested from XOM. If the financial media cannot understand that and investors struck with the ESG fad choose to ignore it, that just means that the dollar amount needed to purchase a given dollar of XOM's cash flow will remain incredibly low relative to the other sectors of the market. I'll take a safe 10% yield any day.