A few months ago, I was pretty high on Exxon Mobil (NYSE:XOM). I called it an appealing play that could deliver steady dividends. If you followed my lead and parked money there, you have picked up $1.64 per share in dividends but XOM stock has gone nowhere. It’s a decent yield, 4.34%, and that dividend is supported by earnings.
But this may be all you get, because the time of oil is over. Oil just doesn’t know it yet.
When oil prices fall, as they did recently toward $50 per barrel, Exxon Mobil’s take is limited by the low price. When oil prices rise, as they did last summer, spiking to $70 per barrel, XOM’s benefit is limited by time, as customers accelerate moves toward electric cars, efficiency, and renewable energy sources.
The Rock and the Hard Place
Exxon Mobil is still finding oil, in old fields like Permian Basin in Texas, and in new plays like Guyana. But Exxon — for all of its production, all its refining capacity, and all of its trading — simply lacks control of the market.
Lots of players think they have control, but it goes through their fingers like, well, oil.
The shale frackers are finding their technology mainly leads to bankruptcy. OPEC is losing members , Russian production is dropping, and the Saudis can’t twist their supplies up and down fast enough to assure stability.
The White House wants to eliminate credits on electric cars and renewable fuels but it’s too late. There were four million electrics on the world’s roads in August and production is accelerating. Renewable energy is now the cheap energy, even cheaper than existing coal plants. It’s no longer just politically popular. The market likes it.
The sunset of oil’s reign is in sight, and there’s nothing Exxon, the Saudis, or even Donald Trump can do to change that.
Buy the Dividend
In this environment there’s only one reason to own Exxon Mobil stock and that’s the dividend.
Exxon Mobil delivered a solid beat on earnings for its September quarter. Analysts expected $1.21 per share — and $1.25 a share was hoped for — but they came in at $1.46.
This gave a short-term lift to the shares but falling oil prices quickly knocked them back down. Recent efforts to bring prices back up have the shares right about where they were before the earnings came out.
Exxon is next due to report earnings on February 1, with $1.34 per share currently expected. That’s enough to maintain the current 82-cent dividend, maybe even bump it up a little. But, ironically, investors should be hoping for a miss because a lower stock price on a solid dividend means a higher yield, and yield is what you’re buying.
Bottom Line on Exxon Mobil Stock
The best time to buy XOM stock is when oil prices get cheap, and the best time to sell it is when oil prices look high.
That’s the way it is with dividend stocks. You’re not looking for optimism. You’re looking for yield.
The question in cases like this is how long that yield may last. You don’t want to get into a General Electric (NYSE:GE) situation, where you’re chasing the high yield and then the dividend goes away.
That’s not a short-term worry with Exxon Mobil stock, but it’s eventually going to happen, say, maybe five years from now. China is switching to renewables and electrics, and the U.S. is going to follow because that’s what the market wants.
When that trend becomes obvious, liquidate. Until then, look for lows and take the income. But you’re not going to get rich in the oilpatch anymore. The 1970s are over.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.