One of my favorite research sites had a posting on Exxon Mobil this weekend and how this stock is actually considered safer than US Treasury bonds. To be truthful XOM has AAA credit rating and the US currently does not. The point is why own a US Treasury that will pay you at most around 2.0% tying up your money for 10 years with all the inflation risk, when you can own XOM and get paid 2.4% and have inflation protection. Seems obvious to me, but let me add a few more points to this argument.
This point hits home more than anything else one needs to know about XOM. The debt load of around $12 billion is insignificant to a stock that has a $390 billion dollar market cap. That is what one calls strong a strong financial position. Imagine the US Government with a capital position like that? XOM also has an aggressive buyback program that over the years sees it buy back as much as 5% of outstanding stock each year. So when you consider the 2.4% dividend, you also have to take into account the continuing back buy that makes the stock you own more valuable each year by 5%. If XOM keeps this up it can buy itself back in less than two decades.
Take the fact that XOM earns just over $8.28 per share annually now and only pays out $1.88 in dividends and you can see where XOM get the huge cash flow for stock buy backs. That also leaves XOM with the ability to increase their dividend annually as well.
Take a look at the stock chart and you see a stock that has gone from around $5 a share in 1970 to around $80 today. No it has not been a steady chart, but what would you have given to own those shares in 1970 and still own them now. That is a doubling every 2 and one half years along with the dividend and buyback's.
Independent experts believe if you valued XOM at the real price of it's assets the total would be over $600 billion instead of the just under $400 billion now. That is likely due to the current Obama administration's emphasis on making big oil companies evil and pushing higher taxes on oil companies. If Obama loses next year you could see a nice bump in the stock price of XOM.
In all XOM is a nice stock to own for those of you looking for a buy and hold stock that pays you well and keeps a close on on your invested dollars. XOM is in my opinion fairly valued here, but it is not expensive either. One could wait and get the stock a bit cheaper if the world economy begins another recession. But I would not be concerned knowing the financial strength of XOM and the fact the upside is almost guaranteed due to the stock buy backs. Safe, dependable income, and steady best in class management is hard to pass by in the current world economic climate. XOM is worth a look.
One other note XOM also has good option opportunities as well for you traders.
I do not own XOM either long or in options.
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