Why Exxon Mobil (XOM) is the Best High-Dividend Stock Right Now
Create passive income through consistent high dividends from a blue chip that is currently on sale
At the time of this writing, Exxon Mobil (XOM) is trading at $49.10 since recovering from its bottoming at $30.11 when it was beat down by the combination of accelerating COVID-19 scares and negative oil prices in late March 2020. Despite the fantastic comebacks from both oil and the overall stock market so far (with no regards to the actual state of the economy), Exxon Mobil is still trading at prices that have not been seen since 2004. Therefore, as the world’s leading oil and gas company and distributor of high dividend yields of 7.36%, Exxon Mobil is on sale as an amazing long-term investing opportunity during a time when other investors are fearful.
Fundamental Analysis
The worst is priced in
Demand for oil and gas is down at shocking levels, and it won’t be looking to go back to pre-coronavirus levels anytime soon. This was initially reflected in the absolute battering of the stock price from around $70 in January down to the $30’s in late March. However, a stock’s price is rarely a true reflection of the company’s current health. It is a forecast. As economies are slowly trying to creep back into opening up, crude oil prices have rebounded from negative to trading at around $35 per barrel and show signs that major oil companies will follow and eventually return to normal levels of operations.
As CEO Darren Woods stated:
“COVID-19 has significantly impacted near-term demand, resulting in oversupplied markets and unprecedented pressure on commodity prices and margins. While we manage through these challenging times, we are not losing sight of the long-term fundamentals that drive our business. Economic activity will return, and populations and standards of living will increase, which will in turn drive demand for our products and a recovery of the industry.”
Exxon’s 3 Business Segments Optimistic to Recover
Downstream: The majority of Exxon Mobil’s revenue comes from its downstream segment which relies heavily upon jet fuel and gasoline demand which have obviously shrunk due to COVID-19. However, as lockdown restrictions ease and people eventually start flying again, 80% of Exxon Mobil’s revenue should slowly restore back to normal levels.
Upstream: The huge oversupply and low demand for oil has halted revenue for Exxon’s upstream business, but looks to recover similarly to the downstream segment as we return to a more normal world.
Chemicals: Exxon’s chemical business segment actually improved its margins in the past quarter as a result of an expansion of their portfolio of petrochemical and polymer products.
Barring a second wave of coronavirus, Exxon Mobil’s stock is on track to return to pre-coronavirus levels which would boast a gain of +40% if an investment were to be made now.
All this sounds great, but what if there is a second wave?
XOM is still a very high dividend stock
Exxon Mobil has a high dividend yield of 7.36%, and CEO Darren Woods has publicly announced that they will continue to focus on maintaining high dividends for shareholders even if cash must be borrowed from the balance sheet in the short-term. Exxon is able to do this given they are an enormous company with a greatly profitable past. Regardless of XOM’s market price long-term investors will greatly benefit from the high dividend payout as passive income.
The world will be normal again..
In the scenario of a second wave of coronavirus, XOM may fall back to the $30 range, however, this should not be of any major concern for long-term investors who buy now. Our world will return to normalcy eventually and prompt an inevitable recovery of stock price back to previous levels as Exxon’s services are. In fact, a second wave will provide another great investing opportunity to buy this high dividend blue chip stock at an even lower price and reap further dividends and long-term returns.
Technical Analysis
- Price trading above 15 EMA
- 15 EMA has crossed above Kijun Ichimoku
- Ichimoku Cloud has reversed from red to green signaling a buy.
Current Price: $49.10
Short-term target price: $70 (barring 2nd wave of COVID-19)
Past 4 quarters dividend per share: $0.87
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