One plan to combat the slumping share prices is a directive that came directly from Russian President Vladimir Putin for state-owned companies to pay dividends in the amount of 25 % of annual net income, thus boosting their appeal to investors at times of low global interest rates. The plan, if it works, would re-energize share prices even though adoption of the directive has been slow. Gazprom, for example, says that it will be difficult to comply, as they need the money for investments
How Does Exxon Compare to Russian Energy Companies?
ExxonMobil, on the other hand, has the money for dividends but it does not pay out very much. Don’t get me wrong. Exxon has been the largest dividend payer in the S&P 500 for years, based on the total amount of dividends paid, which was $10.717 billion as of the end of 3Q, with a payout ratio of 22.5%. Exxon is sitting on the second largest cash pile in the S&P 500—the first being Apple (AAPL).
Looking at Exxon’s latest quarterly balance sheet, one has to net out inventory and receivables and add in long-term investments in financial instruments to get to $48.254 billion in liquid assets. Still, with a small payout ratio and that much cash, the dividend yield is only 2.5%.
Why so low, if Exxon can easily double it? Exxon has had flat-to-declining production in the past couple of years, which requires the company to go to the Russian Arctic in search of reserves. There is a lot of oil in the world, but in hard-to-get places, which means that Exxon’s payout is unlikely to be rising any time soon, as management is trying to acquire new reserves.
Source: Yahoo Finance
One thing you have to remember about Exxon is that, as an equity investment, it is considered super-defensive. That does not mean it cannot go down – any stock can – but it means that in bear markets, with the same conservative management and a large cash position, it tends to go down less, while in bull markets it tends to go up less. There were days and weeks during the infamous 2008 stock market crash when Exxon rose while the rest of the market was going down. The shares have lagged since the March 2009 stock market bottom, but have massively outperformed since 2000, through two nasty bear markets.
Written by Ivan Martchev