In this video, we perform a deep dive on Exxon Mobil’s dividend safety.

Exxon is a well-known dividend stock because of its compelling track record of dividend growth. With 35 years of consecutive dividend increases, Exxon Mobil is a member of the Dividend Aristocrats Index, a group of elite dividend stocks with more than 25 years of consecutive dividend increases.You can download our free list of Dividend Aristocrats here: [ Ссылка ]

In this video, we will discuss the company’s current dividend safety from four perspectives:

1. it’s dividend safety in the context of its current earnings
2. its dividend safety in the context of its current free cash flow
3. its dividend safety in the context of its recession performance
4. its dividend safety in the context of its current debt load

Exxon Mobil’s Dividend Safety Relative to Earnings

When Exxon Mobil reported financial results for the third quarter of fiscal 2018 on November 2nd, the company reported that it generated earnings-per-share of $1.46 in the three-month reporting period.

For context, Exxon currently pays a quarterly dividend of $0.82 per share, which implies a payout ratio of 56% in the most recent reporting period.

Looking out over a longer time horizon, our conclusion is the same. Exxon Mobil generated $3.47 of diluted earnings-per-share through the first nine months of fiscal 2018 while paying $2.41 of dividends for a payout ratio of 69%.

Using earnings, Exxon Mobil’s dividend appears very safe for the foreseeable future.

Exxon Mobil’s Dividend Safety Relative to Free Cash Flow

Through the first nine months of fiscal 2018, Exxon Mobil generated $27.4 billion of cash from operating activities and spent $13.5 billion on capital expenditures for free cash flow of $13.9 billion.

Exxon Mobil distributed $10.3 billion of common share dividends during the same time period, for a free cash flow dividend payout ratio of 74.1%.

Using free cash flow, our conclusion is the same. Exxon Mobil’s dividend appears safe for the foreseeable future.

Exxon Mobil’s Dividend Safety Relative to Recession Performance

We believe that the best way to measure a company’s recession resiliency is by measuring its earnings-per-share performance during the financial crisis that occurred between 2007 and 2009. Exxon Mobil’s performance during this time period is shown here:

• 2007 adjusted earnings-per-share: $7.28
• 2008 adjusted earnings-per-share: $8.69
• 2009 adjusted earnings-per-share: $3.97
• 2010 adjusted earnings-per-share: $6.22
• 2011 adjusted earnings-per-share: $8.42
• 2012 adjusted earnings-per-share: $8.09

Exxon Mobil’s earnings-per-share declined by more than 50% during the last financial crisis. With that said, the company’s earnings still covered its dividend payment, and Exxon continued to raise its dividend throughout the economic contraction.

What is perhaps more important for Exxon Mobil’s shareholders is its performance during times of declining oil prices. With that in mind, the company’s performance during the oil price decline that began in 2014 is shown below:

• 2014 adjusted earnings-per-share: $7.60
• 2015 adjusted earnings-per-share: $3.85
• 2016 adjusted earnings-per-share: $1.88
• 2017 adjusted earnings-per-share: $3.59

Exxon Mobil’s earnings dropped off a cliff in 2014. Importantly, the company’s earnings did not cover its dividend payment during fiscal 2016. The key takeaway for the company’s investors is that Exxon is far from the most recession-resistant stock from a business performance point of view, although it likely has both the financial strength and shareholder-friendly mindset to continue hiking its dividend through all but the worst drops in oil prices.

Exxon Mobil’s Dividend Safety Relative to Its Current Debt Load

The last angle that we will use to assess Exxon Mobil’s current dividend safety is by looking at the company’s current debt level. More specifically, we will see how much the company’s weighted average interest rate will need to increase before the company’s free cash flow will no longer cover its dividend payment.

At the end of the most recent reporting period, Exxon Mobil had $40.0 billion of debt outstanding and generating $200 million of quarterly interest expense, which implies a weighted average interest rate of 2.0%.

The following image shows how Exxon Mobil’s dividend safety would be impacted to changes to its weighted average interest rate:



As the image shows, Exxon Mobil’s weighted average interest rate would need to approximately the 12% level before its dividend would no longer be covered by free cash flow. Accordingly, we believe that Exxon Mobil’s debt level is unlikely to impact the safety of its dividend moving forward.

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