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Oil Prices Weigh, but Exxon's Dividend Is Safe

Allen Good, CFA

Allen Good: Exxon Mobil is currently trading at $77 per share, a nearly 15% discount to our $90 fair value estimate. At this level, its $0.82 quarterly dividend implies a yield of 4.3%. While lower than European peers Shell, Total, and BP, it's higher than U.S. peer Chevron at 3.9%. Historically, Exxon has yielded less than Chevron.

While the recent declines in oil prices have weighted on shares, we see the dividend as safe. Our estimate of its oil price break-even level, which is the level at which it can cover capital spending and dividends, is less than $50 per barrel. That is lower than current levels as well as our estimated midcycle prices of $60 per barrel.

Over the last 10 years, Exxon has grown the dividend about 8% per year, but growth in recent years has slowed with the decline in oil prices. While Exxon is unlikely to match peers' cash returns via share buybacks, we estimate it will continue to prioritize dividend growth. As such, we expect dividend growth to reaccelerate in the next few years with growth of midsingle-digits, closer to historical levels.