1 Energy Dividend Stock Set to Outperform Amid Oil Price Volatility

Barchart · 10/14 15:40

Oil prices have been highly volatile lately, driven by geopolitical tensions and shifting supply dynamics. As the conflict escalates between Israel and Iran, fears of Middle Eastern supply disruptions are unsettling the market. Some analysts caution that crude futures (CLX24) could surge above $100 per barrel if the war disrupts the Strait of Hormuz - a risk that’s seen as low, though any supply blockages would have a massive impact.

Separately, OPEC+ has delayed its plan to ease production curbs until December amid increasing production from locations like Brazil and Guyana. Additionally, with U.S. production reaching a record 13.4 million barrels per day, and worries lingering over softer demand from China, any geopolitical-related spikes in crude prices have been quickly tamped down by oversupply concerns.

Amid this uncertainty, Exxon Mobil Corporation (XOM) has emerged as a strong performer, setting an all-time high of $126.34 on Oct. 7. Renowned for its consistent dividend payments and robust cash flow, analysts at Scotiabank project that XOM stock will outperform amid the current oil market volatility.

About ExxonMobil Stock

Exxon Mobil Corporation (XOM), with a market cap of $487.4 billion, is a global energy powerhouse. Established in 1870 and headquartered in Spring, Texas, its portfolio is largely focused on oil and natural gas (NGX24) exploration, refining, and distribution.

Exxon also has some ventures beyond fossil fuels, with a forward-looking investment in chemicals and clean energy technologies, such as carbon capture and hydrogen.

Shares of XOM are up 24% on a YTD basis, outperforming the S&P 500 Energy Sector SPDR’s (XLE) 10.4% gain over this time frame.

ExxonMobil’s Dividend Legacy

ExxonMobil’s reputation of rewarding shareholders with consistent dividends has earned it a spot among the Dividend Aristocrats, with 41 years of consecutive dividend increases. This financial discipline, built on cost-cutting and operational efficiency, has made Exxon a reliable income source for investors.

On Sept. 10, Exxon paid out a Q3 dividend of $0.95 per share, bringing its annualized dividend to $3.80 per share - a 3.07% yield, well above the SPDR S&P 500 ETF’s (SPY) 1.21% yield. With a forward payout ratio of 40.7%, Exxon’s dividend growth looks sustainable for the long haul.

In Q2, Exxon returned $4.3 billion to shareholders through dividends and bought back $5.2 billion in shares. Following its acquisition of Pioneer Natural Resources, Exxon boosted its share buyback program to $20 billion annually through 2025. For 2024, the company is set to repurchase over $19 billion in shares.

ExxonMobil’s Q2 Earnings Exceed Wall Street’s Projections

Exxon’s Q2 earnings, unveiled on Aug. 2, came in stronger than expected. Total revenue soared 12.2% year over year to $93.1 billion, easily beating Wall Street’s estimate of $89.7 billion. Its non-GAAP EPS jumped 10.3% to $2.14, marking its second-highest Q2 earnings in a decade and outpacing predictions by 4.9%.

The company’s upstream production, driven by key assets in the Permian Basin, Guyana, and Brazil, rose 15% sequentially, pushing output to 574,000 oil-equivalent barrels per day. Exxon’s acquisition of Pioneer, which closed in May, also boosted earnings by $0.5 billion within just two months of closing.

Exxon’s financials reflect a disciplined approach. The net-debt-to-capital ratio sits at 6%, thanks to a $3.9 billion debt repayment. Its cash balance reached $26.5 billion by the end of June, while Q2 adjusted free cash flow was a healthy $9.56 billion.

Analysts are expected a 14.8% dip in earnings to $8.11 per share for fiscal 2024, with a 6.4% rise to $8.63 per share anticipated for the next fiscal year.

What Do Analysts Expect for ExxonMobil Stock?

Last week, Scotiabank upgraded XOM from “Sector Perform” to “Sector Outperform,” and raised the stock’s price target to $145.

“Although it is not a cheap stock in a traditional sense versus the other supermajors, we think the market will continue to pay up for the premium given the uncertainty and risk in the oil market,” wrote analyst Paul Cheng in a note to clients. “In addition, we believe ExxonMobil’s (XOM) upstream portfolio currently ranks the strongest among the supermajors, particularly following their acquisition of Pioneer Natural Resources.”

ExxonMobil has a consensus “Moderate Buy” rating overall. Of the 22 analysts covering the stock, 13 advise a “Strong Buy,” eight suggest a “Hold,” and one analyst has a “Strong Sell” rating.

The mean price target of $130.09 suggests an upside potential of 4.8% from the current price levels. The Street-high target price of $149 implies that XOM could rally as much as 20% from current levels.

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On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.