Put Time on Your Side with Exxon Mobil

Exxon Mobile LogoLegendary investor Warren Buffett, considered by many to be the greatest investor ever, has often described his preferred holding period for an asset to be “forever.”  Worth more than $55 billion, Buffett has prospered from putting time and compound interest, the most powerful force in the universe, on his side in investing.  For every college student, this is the main resource they have in greater abundance than Warren Buffett.  Investing in companies like Exxon Mobil (NYSE: XOM) helps to make that time advantage even more rewarding.

 

Why Investors Love Exxon Mobil

Exxon Mobil is the largest oil and natural gas company in the world.

It has many appealing features for those looking for income, growth, and value features.  For income investors, who like to be paid to own a stock by receiving dividends, Exxon Mobil is a member of an exclusive club known as the “Dividend Aristocrats.”  These are publicly traded companies that have increased their dividend annually for at least 25 years.

At present, Exxon Mobil pays a dividend of 2.78%.  That is much higher than the average dividend for a member of the Standard & Poor’s 500 Index of around 2%.  Moreover, Exxon Mobil has a dividend growth rate of 8.26%, based on the last five years.  That means that the dividend doubles about every nine years.  Just for owing the stock of Exxon Mobil, the shareholder receives an increasing dividend payment every year.

The growth features of Exxon Mobil are what provides for the flow of capital to pay these dividends.   The amount of money Exxon Mobil makes for each share, the earnings-per-share, is increasing by more than 15% this year.  Exxon Mobil has global operations to increase the amount of money it makes.

Contributing here are the wide range of operations with an even wider variety of partners.  For example, Exxon Mobil is partnered in a joint venture in Argentina with Americas Petrogas (TSX: BOE), a Canadian oil and gas firm.  According to Barclay Hambrook, the Chief Executive Officer of Americas Petrogas, the resources being developed in Argentina are even more promising than the legendary Eagle Ford in Texas.

Ventures like these around the world are what make Exxon Mobil so attractive to value investors – those looking to buy stocks that are trading at a discount.  For Exxon Mobil, the price-to-sales ratio is just 0.90.  That means that investors are buying the sales of the world’s largest oil and natural gas company at a 10% discount.

The foundation for the very appealing income, growth, and value features of Exxon Mobil is its pristine balance sheet.  Even though Exxon Mobil is worth more than $400 billion based on its market capitalization, it has almost no debt.  The debt-to-equity ratio of Exxon Mobil is 0.08.  That means that it took less than a dime of borrowing to create each dollar of equity for Exxon Mobil , which is very impressive.

 

Why Exxon Mobile is a Great Long Term Investment

What makes Exxon Mobil even more attractive as a long term holding is that it is a very stable stock.  The beta for Exxon Mobil is just 0.50.  That means that the price of Exxon Mobil is only half as volatile as the stock market as a whole, which has a beta of 1.  This is alluring as studies have shown that the low beta stocks have the highest returns.

Exxon Mobil is now trading for around $90 a share.

Over the next year, the consensus of Wall Street analysts is that Exxon Mobil will hit a target price of $95.17.  That is about 5% growth .  Coupled with the average dividend growth rate of the last five years, that would result in an almost 15% return for the investor.  With gains projected like that for Exxon Mobil, it is easy to understand why Warren Buffett prefers not to sell the stocks he owns.

What are your thoughts on Exxon Mobile?  Long term play, or should you avoid the oil industry?

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Comments

  1. says

    I really haven’t done my research on Exxon so I am a little on the fence until I do the research needed. I like the idea and those dividends do look appealing as well. Could easily be a long term play but I would never just buy and leave it though. Always check up on your stocks and I know a lot of people who wouldn’t invest simply because they are against the oil industry.

      • says

        I recently posted an analysis of Exxon Mobil on my site. I think the stock is undervalued, has very good prospects for growth in earnings and dividends, and therefore will result in very good performance for investors over time.

        Also, it is nice that you have all the Rockefeller trust fund babies on your site with this company ( which has paid dividends for over a century)

    • Jonathan says

      Glad you like it: two points about Exxon I emphasize are the increasing dividend and the low debt load…very good signs for long term investing!

  2. says

    If you believe XOM can diversify as energy sources become more varied, and capitalize on a new energy economy, then they’re definitely a buy and hold forever.

    But, if they’re insistent on being a legacy fossil fuel company, then I wonder about their prospects.

    They are packed with very, very smart people though, I’m sure they have contingency plans.

    • Jonathan says

      Exxon is constantly expanding and improving, as shown by deal with Americas Petrogas. They are always doing what it does to perform for the shareholders. You are right about the quality of their staff, too.

  3. says

    You can’t really argue with Warren Buffett’s investing strategy. It looks like Exxon is a great stock to own for many of the reasons you stated above. I don’t think many college students realize how much time will affect their returns over the long term. I know I wish I had started 5 years ago while in college.

  4. says

    I’ve already got some holdings of BP, hoping for a recovery though since I’ve bought it’s mostly traded sideways. I’d have to look at whether this would be exposing myself too much to the oil industry if I were to invest here, but you make a compelling argument to at least take a look.

    • Jonathan says

      BP is a great oil company, too. I think you will be pleased with their long term performance, too. I do not think you can be overexposed to the oil industry based on the history of increasing dividends from the companies in the sector.

  5. says

    I do not invest directly in Exxon, however I benefit from my S & P 500 investment. When I retire, I will shift some of my investments to more income producing investments vs. growth.

  6. says

    Many great reasons to buy XOM, and also many of the same reasons why I like Visa (V) and will be adding a block of shares along with Nestle (NSRGY) after my next purchase of Coca-Cola (KO).

  7. says

    Hard to argue with Buffett and the Exxon thing looks like the real deal, but I have found him to be a bit similar to Kiyosiki in a few regards. Not as big hypocrite, but come on, he knows why he is saying some things and not others.

  8. says

    Exxon looks like a pretty good buy. I haven’t had an oil company in my portfolio since I sold BP when the Gulf oil spill happened. I think it is a good sector to own.

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