Warren Buffett: Exxon Mobil (XOM)
I’ll start with Warren Buffett.
Earlier this week, I wrote a short piece that gave the rundown on Berkshire Hathaway’s (BRK.B) latest portfolio moves, and particularly its accumulation of dialysis provider DaVita (DVA). Well, as much as I like DaVita, it can’t be counted among dividend stocks with a payout of zero, so it is off limits for this particular article.
But Exxon Mobil (XOM) is a very different story.
Berkshire Hathaway made a $3.5 billion investment in XOM, reinforcing my belief that the global oil majors are a bargain after a disappointing couple of years in the market. Yes, earnings growth has been modest. But at just 12.4 times earnings and 1.1 times sales, Exxon is being priced as if it will never grow again.
Exxon Mobil also happens to be a dividend-raising powerhouse — XOM has raised its dividend for 31 consecutive years (and counting) at an average annual rate of 6.3% over the period. And there is plenty of room for more; its dividend payout ratio is a modest 31%.
At current prices, XOM sports a dividend yield of 2.6%, just slightly less than what you can get from a 10-year Treasury note. But 10 years from now, Exxon’s payout is likely to be 80% to 90% more than it is today, whereas the Treasury’s coupon payment will be unchanged.
If those are my two choices, I’m going with Exxon.