Exxon Mobil Corporation (NYSE:XOM) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 10th of February in order to be eligible for this dividend, which will be paid on the 10th of March.
Exxon Mobil's upcoming dividend is US$0.87 a share, following on from the last 12 months, when the company distributed a total of US$3.48 per share to shareholders. Based on the last year's worth of payments, Exxon Mobil has a trailing yield of 5.8% on the current stock price of $59.97. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Exxon Mobil
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Exxon Mobil paid out 102% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Exxon Mobil's earnings per share have fallen at approximately 15% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Exxon Mobil has lifted its dividend by approximately 7.6% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Exxon Mobil is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
To Sum It Up
From a dividend perspective, should investors buy or avoid Exxon Mobil? Earnings per share are in decline and Exxon Mobil is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.
Ever wonder what the future holds for Exxon Mobil? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
https://finance.yahoo.com/news/dividend-investors-dont-too-quick-104826837.html
2020-02-05 10:48:00Z
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