Legendary 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 ExxonMobil (NYSE: XOM) helps to make that time advantage even more rewarding.
Why Investors Love ExxonMobil
ExxonMobil 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, ExxonMobil 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, ExxonMobil pays a dividend of 2.78 percent. That is much higher than the average dividend for a member of the Standard & Poor’s 500 Index of around 2 percent. Moreover, ExxonMobil has a dividend growth rate of 8.26 percent, based on the last five years. That means that the dividend doubles about every nine years. Just for owning the stock of ExxonMobil, the shareholder receives an increasing dividend payment every year.
The growth features of ExxonMobil are what provides for the flow of capital to pay these dividends. The amount of money ExxonMobil makes for each share, the earnings-per-share, is increasing by more than 15 percent this year. ExxonMobil 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, ExxonMobil 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 ExxonMobil so attractive to value investors — those looking to buy stocks that are trading at a discount. For ExxonMobil, 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 percent discount.
The foundation for the very appealing income, growth, and value features of ExxonMobil is its pristine balance sheet. Even though ExxonMobil is worth more than $400 billion based on its market capitalization, it has almost no debt. The debt-to-equity ratio of ExxonMobil is 0.08. That means that it took less than a dime of borrowing to create each dollar of equity for ExxonMobil, which is very impressive.
Why ExxonMobil is a Great Long-Term Investment
What makes ExxonMobil even more attractive as a long-term holding is that it is a very stable stock. The beta for ExxonMobil is just 0.50. That means that the price of ExxonMobil is only half as volatile as the stock market as a whole, which has a beta of 1.00. This is alluring as studies have shown that the low beta stocks have the highest returns.
ExxonMobil is now trading for around $90 per share.
Over the next year, the consensus of Wall Street analysts is that ExxonMobil will hit a target price of $95.17. That is about 5 percent growth. Coupled with the average dividend growth rate of the last five years, that would result in an almost 15 percent return for the investor. With gains projected like that for ExxonMobil, it is easy to understand why Warren Buffett prefers not to sell the stocks he owns.
What are your thoughts on ExxonMobil? Long-term play, or should you avoid the oil industry?
Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.