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Option1307 (30.51)

Exxon Mobil, Worth a Look?

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January 29, 2010 – Comments (26) | RELATED TICKERS: XOM

It certainly presents an intriguing opportunity if nothing else...

My personal opinion is that the overall market is boarderline overvalued  (SP500 @ ~1090). There are not the obvious buys out there anymore that there were back at the March 2009 lows. I miss those good ol' days, when you could blindly throw darts and score big. Honestly, practically free money. However, that is no longer the case. I feel we need a significant pullback and expect it to happen eventually; however, I have no idea when/if it will actually occur.

With this in mind, I have started looking in different areas for my investing plays. Trying to find "out of flavor" sectors/stocks and/or solid dividend paying blue chips (see here and here for previous ideas). My thought is that these will perform well over the long term (5-10 yrs.), and will also hold up well if we do experience a large correction (pretty please market gods?). So, why XOM you ask?

Big oil is evil, blah blah blah, they make too much money, blah blah, they pollute the environment and are in bed with the government! I'm not going to debate the particulars of these statements, but lets get on thing straight before people write this company off b/c of persoanl reasons.

Exxon is big oil and I'm sorry, but oil is here to stay for the foreseeeeeeable future. As much as I'd love to see other energy sources, we are no where even remotely close to having other viable options. We use oil in everything. Not just transportation, but oil is used in pratically every product we consumer (think plastic). It's here to stay. Some day we will weed ourselves from this addiction, but not before oil prices rise significantly and stay high for an extended period of time.

XOM is notorious for being a solid company with a solid balance sheet. Lots of cash and very little debt which reflects highly of management and if we learned anything last year. It was that having a clean balance sheet is key to surviving disastor. They did, and will continue to do so going forward. They have a solid history of paying out dividends and raising it about every year, and most importantly, they did not cut it during last years swan dive off the cliff. Currently the yield is ~2.6%, sweet!

Recently XOM acquired XTO in order to boost their natural gas exposure. XTO is one of the largest natural gas players in the US. This is obviously a bet the NG is where we are headed in the future. I don't see how this can't pay off in the end. Thge US not only has massive NG resources, but it is also cleaner. Which as you know, is currently the "it" word. There have been mixed opinions as to whether Exxon overpaid for XTO. This stock got hammered the week post this accusition anouncement, apparently many invesetors felt XOM bid too much as well. I believe the premium waas justified b/c of the huge potential income with an increase of NG prices (they have to climb, they are at historic lows).

The SP 500 has rallied like crazy since March. So has XOM, a crazy 5%! Yes, that is correct, it is 5% higher now than it was in March of 2009. Umm, what? Ya, my thoughts exactly. Even if we do have a significant pullback (we should) and even if oil prices go down near term (how they haven't already is beyond me, where is the demand??), XOM doesn't have that much to fall. There is practically no way the number one big oil company falls down for long. Eventually this will regain whatever downside it gives up in the near term.

Think about it, you're buying the biggest big oil at near their 52 week low (which occured when the world was ending!). This sector has almost every macrotrend solidly in it's favor right now. ie. a) oil prices will go higher and b) inflation. To top it off, they are going to pay you 2.6% to just sit back and hold it for 5+ years. 

I'm not aiming for the moon with this, or trying to hit a homerun, just a steady income stream with a nice potential for appreciation as well. I'm not going "all in" with this play, but I need something to invest in! Dedicating a small portion of funds to XOM at these levels makes sense IMO.

So, who wants to sell their soul to the devil and buy some Exxon Mobil with me?

Comments, thoughts, and criticisms are welcmed and encouraged...

26 Comments – Post Your Own

#1) On January 29, 2010 at 1:49 AM, truthisntstupid (95.99) wrote:

XOM  Debt/equity ratio   9%

         Dividend payout ratio    38%

         Dividend growth rate, average    8.5%/year

Rule of 72    Divide 72 by   .085  =  roughly about 8.5.

Hardly any debt.   With a 38% dividend payout ratio not only can exxon easily sustain the dividend, they can also easily sustain the dividend growth rate for many years to come...which as I've shown above means that dividend should about double every eight and a half years, unless they accellerate the dividend growth rate.  They certainly wouldn't slow the dividend growth rate down when it is such an effortless commitment for them.   Shares bought today can almost certainly be counted upon to yield around 10% on original cost in about 17 years, because the dividend will about double in around eight and a half years,  then eight and a half years later it will double again. 

Just my quick take.

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#2) On January 29, 2010 at 2:22 AM, memoandstitch (< 20) wrote:

XOM has dropped by about 9.32%.  Did Exxon overpay the XTO deal by $20B???  Something else must be going on.

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#3) On January 29, 2010 at 2:28 AM, truthisntstupid (95.99) wrote:

I may be more attracted to Chevron (CVX). 

Debt/equity                               12%

Dividend payout ratio                  43%

Dividend growth rate, average  about   10% 

Current yield                                3.7%

72 divided by   .10   =   about 7.2 

Just about the same story.  Easily sustainable dividend and dividend growth rate and low debt.   This dividend starts with a current yield of 3.7%  and should about double every 7 years or so.  Shares bought today should easily be yielding around 14% on original cost in about 14 years.   They don't have the natgas component,  but I bet the dividend growth can be counted on anyway.

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#4) On January 29, 2010 at 2:45 AM, truthisntstupid (95.99) wrote:

Neither of these are very likely to run into any trouble paying their dividend or keeping their annual schedule for increasing it any time soon.  These returns fall into the "most likely"  rather than  "maybe"  or "possibly"  ctegory. 

Which is why I like dividend investing.  The investor has more control over his/her financial destiny.

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#5) On January 29, 2010 at 4:52 AM, saunafool (98.66) wrote:

I was recently thinking the exact same thing.

One thing for XOM is that they have production rights to one of the big Iraqi oil fields. It currently produces nothing, in 5-10 years it will produce 2 million bpd. Now, XOM will "only" get like $1.90 per barrel, but that is like $1.4 billion of additional revenue per year. More importantly, it will beef up their reserves, which have been been the major concern with their position in the past several years.

As for the purchase of XTO, I think natural gas is a winner. It is the cleanest hydrocarbon energy available, and should be cheap for a long time (with the big LNG projects coming on line in the future). Now, being cheap might not be great for XOM, but for NG to succeed in the marketplace, people need to view it as a secure source of energy with relatively stable pricing. Those swings from $2 to $15 over the past 8 years are not good.

sf

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#6) On January 29, 2010 at 7:08 AM, gartersnk (46.30) wrote:

Another advantage to both are their DRIP programs. You can buy into either or both (better IMHO) directly, skip the broker, ExxonMobil has no fees, Chevron has a small transation fee, both allow monthly automatic investments starting at only $50 - dollar cost averaging (DCA) plus dividend reinvestment can grow wealth with minimal risk.  Only downside is you have minimal control over buying price but over the long term, which I define as more than 3 -5 years, that is the point of DCA. For those who prefer to try to time the market (poor idea) or just add more to a position during dips - like now for Exxon, you can add optional cash payments at anytime, Exxon purchases weekly so you can sorta time.  I've been waiting for Exxon to hit the mid 60s to add to my position and did this week, if they go lower I plan to add more next week. I'm already sitting good with Chevron but would add to my position there on a 10% or better pullback. Disclosure own both XOM and CVX.

BTW BP, RDS-A and TOT have similar programs, add overseas exposure and have higher yields

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#7) On January 29, 2010 at 7:21 AM, gartersnk (46.30) wrote:

Current yields based on yesterdays close for "Big Oil"

BP         5.8%
RDS-A   4.9%
E           4.9%
TOT       4.7%
COP      4.0%
CVX       3.7%
PTR       3.2%
XOM       2.6%
CEO       1.6%
PBR       0.9%

ALL have a DP DRIP program

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#8) On January 29, 2010 at 7:50 AM, gartersnk (46.30) wrote:

forgot SSL  at 2.6%

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#9) On January 29, 2010 at 8:56 AM, Option1307 (30.51) wrote:

truthisntstupid

Easily sustainable dividend and dividend growth rate and low debt.

Yep, this is essentially my whole basis for liking them at current levels. The dividend is extremely safe, thus you are getting paid to just chill out. All they while there is a good chance for capital appreciatin from these low levels.

I may be more attracted to Chevron (CVX). 

I looked into Chevron, BP, etc., all of them look attractive and have larger dividend yields which is encouraging. However, they have all rallied substantially the last year. Some ~40-50%. My problem with this, is that if we get a significant correction and if/when oil prices decrease in the near term. These stocks all have much farther to fall.

I specifically like XOM now, b/c I feel it is the safest play currently. You can buy in at these levels and just go away. It should hold up well regardless of the market action. Now if/when oil prices go down, ya CVX, BP, etc. will be also become great buys. 

 memoandstitch

Something else must be going on.

Not necessarily, people freak out all the time when it comes to acquisitions. gain, my belief is this just presents an excellent entry point.

saunafool

Those swings from $2 to $15 over the past 8 years are not good.

Agreed, eventually this will level out as NG becomes more popular going forward. Which it will. As demand increase in the coming 5-10 yrs. prices will stabilize and rise.

gartersnk

Another advantage to both are their DRIP programs.

I love DRIP programs, the are essential for buys like this. You literally can buy and forget about it for yrs. (well ok, you should never "forget" about an investment, but you know what I mean).

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#10) On January 29, 2010 at 10:23 AM, gartersnk (46.30) wrote:

I would "forget"  but it is great to setup a $100 auto monthly buy, esp with XOM where the whole $100 buys stock and just let it ride, I'm just not fond of commiting $1000 one day when I can spread it out for 10 months

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#11) On January 29, 2010 at 10:24 AM, gartersnk (46.30) wrote:

oops I meant I would NOT "forget"  sorry

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#12) On January 29, 2010 at 12:46 PM, truthisntstupid (95.99) wrote:

Another fan of direct stock purchase plans!   I use only direct srock purchase plans myself, gartersnk.  And my prospectuses for CVX, XOM, COP, and RDS-A  are sitting in a filing cabinet behind me.  I tend not to worry too much about entry level when I want to get enrolled in a DSPP.  Once I'm enrolled I then add to it when I can either on dips or if money's burning a hole in my pocket.  If money's burning a hole in my pocket I'd rather pay too much for good dividend-paying stocks than blow it on something else. 

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#13) On January 29, 2010 at 4:08 PM, gartersnk (46.30) wrote:

Yep that's the beauty of DRIPs. I do occasionally use moneypaper.com to buy the first share of a DRIP that doesn't offer intial investment or has a high entry level - if you watch their specials you can buy 1 share for share cost + $15 - they do all the paperwork to setup the DRIP with the company's transfer agent and your in -  just recently did that for JNJ - it can take up to 60 days from initiation (all online) to getting the first account statement or showing up on the books at the transfer agent - but as DRIP investors patience is a must anyhow.

I'm going to use them for AFLAC as well gets around the $1000 minimum - as I said earlier I'd rather do $50/20 or $100/10 than a grand on one day in the market

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#14) On January 29, 2010 at 10:02 PM, truthisntstupid (95.99) wrote:

gartersnk

I've thought of buying one share of SYSCO so that I could enroll in their plan.  As a cook who has worked in about 10 restaurants I'm thoroughly familiar with their competitive position.  They rule the restaurant world everywhere that I've worked in the last 15 years.

Option1307

They say you can't just buy and forget or you're an idiot, but if  "they"  think there's abolutely no exceptions to that rule they don't know much.  I think either XOM or CVX would qualify as safe buy-and-forget stocks.   I'll probably buy some CVX soon.  I don't believe I've ever seen it yielding much more than it is now, so I don't know about it falling much and if it did I'd be pretty happy for the opportunity to add to it even cheaper anyway.  As it is, it's priced to give me a yield on cost of about 14%  in about 14 years, by my figures, and I tried to be conservative. 

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#15) On January 29, 2010 at 10:42 PM, goalie37 (96.99) wrote:

Great post.  I bought some CVX earlier this week, but XOM is a great buy as well.  I don't know where oil is headed in the short term, but it's hard to imagine a scenario where oil isn't expensive in the long run.  Both CVX and XOM pay a nice, sustainable dividend while we wait.

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#16) On January 29, 2010 at 10:51 PM, truthisntstupid (95.99) wrote:

Goalie37

What's the most you recall CVX yielding recently?  I'm pretty sure to buy some soon myself.

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#17) On January 29, 2010 at 11:22 PM, goalie37 (96.99) wrote:

I bought it at 3.6%

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#18) On January 29, 2010 at 11:45 PM, mapboys (73.27) wrote:

You fellows could all be in a little early, at least on the Natural Gas side as prices have yet to find a home at those 'higher' levels. Without a lot more cold weather in the south, as well as up north to get the storage levels down below 1,800 BCF, I don't think you'll see mcf prices above $6 for a few years.  Without $6 natural gas not too many shale plays are really commercial.

 On the oil side I sold CVX today and swapped into XOM, adding to my XOM position which is better position going forward once they finish scooping up XTO.  

 For disclosure I'm long XOM, DNR, SWN, HK, XTO and I've never gotten up the nerve to short CHK although I've really wanted to. 

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#19) On January 30, 2010 at 4:37 PM, gartersnk (46.30) wrote:

CVX yield was slightly over 4% late last summer

 

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#20) On January 30, 2010 at 5:01 PM, truthisntstupid (95.99) wrote:

Yeah I would like to own both but XOM would have to go down to a record low to reach a price I'd be willing to pay for it.  Unless, of course I changed the reason I was buying it to one of hoping to profit off a short (or even long)  term price appreciation.  As an income investment, at its current price and past average dividend growth rate, it will be about seventeen years before it has a 10% yield on cost.  So for my purposes of buying it for long-term dividend income in retirement I'll pass.

I'll be 65 in twelve years.  CVX with its past average dividend growth rate, is currently priced to offer me about a 14% yield on cost just a few years past that.

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#21) On January 30, 2010 at 5:09 PM, goalie37 (96.99) wrote:

Great thread guys.  Dividend growth over time is something that is heard almost never (or never) in the financial media.

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#22) On January 30, 2010 at 5:57 PM, truthisntstupid (95.99) wrote:

Goalie

Yeah...isn't that strange?  Here we have two companies that are strong enough that you can just about count on getting these very predictable results if not better ones with a dividend growth investment strategy.  Yet some people can't get their head around it because they just can't separate trying to buy low and hold for price appreciation from this, which is a totally different strategy.   I simply don't care what happens to price in the short-term, other than the fact that dips present opportunities to add more shares cheaper. 

Opportunities like this are always to be found, which makes people speculating about "which way the market's going"  and the entire Bull vs Bear  crap seem really stupid to me.

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#23) On February 01, 2010 at 7:51 PM, gartersnk (46.30) wrote:

The corollary to Cramer's "there is always a bull market somewhere"  --   there is also a bear market somewhere with GREAT opportunities to buy QUALITY -  CHEAP

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#24) On February 01, 2010 at 8:09 PM, truthisntstupid (95.99) wrote:

I just closed out PGN and WIN so I could buy CVX with the proceeds.  Using the reasoning I already explained, this is more buy and keep than buy and hold.

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#25) On December 30, 2010 at 1:19 PM, TheDumbMoney (59.34) wrote:

Option, thanks for the tip to this, great post.

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#26) On December 30, 2010 at 3:43 PM, Option1307 (30.51) wrote:

Thanks, glad you enjoyed it!

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