Energy giant Exxon Mobil Corp (NYSE 🙂 has a large Quickly dive into the random sale that has taken the market this week. This is not surprising – the fate of oil stocks is closely linked to the economy, which is under pressure after the outbreak of the corona virus in China, & # 39; the world's largest oil importer.
After a decrease of around 8% in the last two days, Exxon Mobil shares have reached the lowest level in 15 years. It fell to $ 54.20 yesterday, extending the 22% drop this year. The last time the Texas-based driller's share was traded at this level was at the end of 2005, when $ 59 was raised.
Exxon Mobil Weekly Price Chart
That huge dip has pushed the dividend yield on Exxon Mobil shares to more than 6%, most since the mid-1990s, making it one of the best-performing blue chip stocks on the
.
This type of return from AAA-rated stocks should be very tempting for long-term income investors whose investment objective is to receive growing dividend income from companies that are leaders in their respective industries. Exxon has been a generous dividend payer and has increased its shareholder payment every year for the past 37 years. It currently pays $ 1.74 per share.
But the recent financial performance of the company raises concerns about the possibility of financing dividend payments. In the fourth quarter, Exxons did not cover cash from operating activities to cover capital expenditures, and it was the fifth consecutive quarter in which the company relied on selling assets or loans to cover its dividend payments.
Uncertain future
As the future of Big Oil becomes uncertain, some of & # 39; the world's largest research agencies become more open in advising investors to stay away from oil stocks.
Morgan Stanley said in a recent note that Exxon & # 39; most & # 39; is exposed to negative headwinds in the industry, including an oversupply in oil and liquefied natural gas. Goldman Sachs downgraded Exxon to sell & # 39; and lowered its price target from $ 72 to $ 59.
"We see no compelling case to own XOM compared to other energy stocks with a more attractive return profile," wrote Goldman analyst Neil Mehta.
A major reason that investors are starting to stay away from Exxon shares is the rather radical approach of the company to create value. At a time when other oil companies are focusing on strengthening their cash positions by avoiding large card investments, Exxon spends a lot on new initiatives.
Despite poor predictions for oil demand, Exxon CEO Darren Woods believes that the oil and gas industry needs trillions of dollars in new investments to meet global demand for energy products by 2040. With this in mind, Exxon is investing in cheap mega projects that will help preserve the company's dominance in the oil and natural gas markets for decades.
That approach, although not investor-friendly, is showing some success. Exxon's output from the Permian Basin has increased by 79% since 2018. And the company has discovered more than 8 billion barrels of oil in Guyana – a discovery that led Rystad Energy to call Exxon its explorer of the year in both 2018 and 2019.
Despite these successes, investors do not want to bet on XOM shares. Darren is scheduled to present the long-term strategic plan of the oil explorer to investors and analysts on March 3, where he will have to provide a powerful argument for his spending plans in this extremely negative environment for the oil industry.
In November, Moody & # 39; s Investors Service lowered Exxon's prospects for its outstanding indebtedness to negative due to a "substantial" cash burn to finance growth.
"The company's high level of growth capital investments cannot be financed with operational cash flow and asset sales at projected levels, given the substantial dividend payment from Exxon Mobil," said Moody.
Bottom Line
At a time when other integrated producers such as Chevron Corp ( NYSE :), ConocoPhillips (NYSE 🙂 give more money back to investors and the long-term outlook for the energy markets remains weak, Exxon shares do not look like a winning proposition, despite the attractive dividend yield. Moreover, the company's heavy investment makes it a more risky bet between oil stocks.
