As the momentum develops behind the seismic shift that promises to radically transform energy markets, it has become crucial to closely monitor the long-term viability of investments in large oil stocks, such as to evaluate. Exxon Mobil (NYSE :).
Betting on top oil stocks has never been without risk. The biggest challenge for investors when evaluating energy stocks is to correctly predict the direction of the markets. This is of course an almost impossible task, given the extremely volatile nature of the product.
Even if you are an energy bull in the long term, choosing the right supply from the "super majors" energy is more complicated, given the uncertain prospects of long-term supply and demand in the context of the ever-increasing use of renewable energy sources, electric cars & global pressure to curb climate change
The performance of the Exxon Mobil shares reflects this challenging working environment for oil giants. The stock has fallen by 11% this year when it achieved a return of 3%. Over the past five years, the performance of this once most valuable company on earth has been disappointing. The shares fell by 34% during that period, while the S&P 500 increased by around 60%. They closed yesterday's session with 1.4% at $ 61.88.
Exxon Mobile monthly prices
Given this gloomy performance, it is important to ask this question: will Exxon Mobil be able to offer dividend growth, which is the only plausible reason for investors to buy this share in this environment?
Exxon has been a generous dividend payer and has increased the payment of its shareholders every year for the past 37 years. With its annual dividend yield of 5.5% – the most since the mid-1990s – Exxon shares have become one of the best-performing blue chip stocks on the S&P 500.
Negative headwind
But the recent financial situation 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.
As the future of Big Oil becomes uncertain, some of & # 39; the world's largest research firms become more open in advising investors to stay away from these stocks.
Morgan Stanley said in a note this week that Exxon is "exposed the most" 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 the shares of Exxon is the fairly radical approach to creating 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.
"We strongly believe that investing at the bottom of this cycle has some real benefits," Woods told analysts during a conference call last week. "We have a very healthy balance that was built for times like this."
In the short term, however, this impressive growth plan has had a major impact on the shares and the stability of the company's dividends. In November, Moody & # 39; s Investors Service lowered Exxon's prospects for its top debt to negative as a result of 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 (19459004 ] (19459004) 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 preposition, despite the attractive dividend yield. Moreover, the company's heavy investment makes it a more risky bet between oil stocks.
