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Exxon Mobil Corporation's (NYSE:XOM) investors are due to receive a payment of US$0.87 per share on 10th of September. Based on this payment, the dividend yield will be 6.0%, which is fairly typical for the industry.
Exxon Mobil's Distributions May Be Difficult To Sustain
We aren't too impressed by dividend yields unless they can be sustained over time. Exxon Mobil is unprofitable despite paying a dividend, and it is paying out 376% of its free cash flow. This makes us feel that the dividend will be hard to maintain.
Recent, EPS has fallen by 30.7%, so this could continue over the next year. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.
Exxon Mobil Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the first annual payment was US$1.76, compared to the most recent full-year payment of US$3.48. This means that it has been growing its distributions at 7.1% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Exxon Mobil's earnings per share has shrunk at 31% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Exxon Mobil's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Exxon Mobil's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Exxon Mobil is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Exxon Mobil that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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