It didn’t take too long to put some capital to work and add shares from one of the companies on my latest dividend watch list that includes a handful of what I consider to be undervalued stocks.
While the market has not been quite as crazy as what we saw in October, it looks like there are still going to be plenty of buying opportunities for the patient investor.
With that said, let’s take a look at my latest purchase.
Background on Exxon Mobil
Exxon Mobil Corporation explores for and produces crude oil and natural gas across multiple countries, including the United States, Canada, and Europe.
Just a few days shy of 20 years ago, Exxon and Mobil had agreed to a deal to merge and form the company Exxon Mobil Corporation. The deal took one year to close and included their agreement to sell over 2,400 gas stations across the United States, which was required by the Federal Trade Commission.
This was the largest divestiture ever required by the FTC and the 11-month review was one of the longest ever–understandable given the top two companies in the industry were merging.
Exxon Mobil was formed in 1870 and is headquartered in Irving, Texas.
Exxon Mobil By the Numbers
Exxon Mobil has a long history of increasing their dividend and have been rewarding dividend investors with consistent dividend raises for 36 years.
Reviewing Exxon Mobil with Simply Safe Dividends, we see that their dividend is considered to be quite safe. While they have had a high payout ratio over recent years, that is expected to decline.
In addition, the company carries very little debt relative to the sector and maintains a healthy Net Debt to EBITDA of 1.02–which measures how many years of EBITDA would be required to pay off all debt.
Taking a look at FAST Graphs, XOM appears to be fairly valued if not a bit over-valued compared to their normalized P/E ratio. As you can see, the steep decline of the P/E began in 2014 and bottomed out in 2016 which coincides with the oil crash that occurred in 2014.
Exxon Mobil has had mid to high single-digit dividend growth for much of the last decade, although that slowed in the last year to a more conservative 3% growth.
For a long-standing company like Exxon Mobil with a dividend yield that is north of 4.0%, I typically like to see dividend growth of 5-8%. Earlier this year they announced a 6.5% dividend raise which puts them squarely back in that range.
Adding to Exxon Mobil Position
As mentioned on my dividend watch list, I was targeting a price below $80/share and had missed the movement in October as I was busy deploying capital elsewhere.
Rather than chase the price, I remained patient and was rewarded today with the opportunity to add more shares.
You’ll see below that I broke up my purchase in two orders. Lately I have been buying in multiple lots to take advantage of prices that move lower after an initial buy, although my range here was much narrower than normal.
The 20 shares purchased at an average price of $78.00/share will add an additional $65.60 in forward dividend income.
Overall, this increases my position in XOM to 40.203 shares.
After achieving my forward dividend income goal, I reset the bar and am continuing to chip away with reinvested dividends, dividend raises, and new capital being deployed. My PADI, or projected annual dividend income, now stands at $5154.01.
That leaves me with an additional $345.99 to go towards my revised goal.
With my purchase price of XOM @ $78.00/share, I was able to capture a 4.21% yield and that is 19.6% above their 5-year average dividend yield. From my perspective, I think anything under $80.00/share represents a fair value for Exxon Mobil right now.
The company certainly has made some strong bets on their future, and that hasn’t necessarily sat well with shareholders as of late.
I believe that many people have been expecting them to use their growing free cash flow to initiate a share repurchase program, however Exxon Mobil management has decided to invest in their growth when CEO Darren Woods announced a 7-year major growth program that would include significant increases in capital spending.
That is a bold move while others in the sector have been on a nice ride, Exxon Mobil has been fairly flat. However, should their plans come to fruition, they will be extremely well positioned while their competitors are playing catch-up in a few years.
For the time being, I am happy to add to a solid blue-chip company at a fair price.
What do you think of Exxon Mobil?