Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Exxon Mobil in Focus
Exxon Mobil (XOM) is headquartered in Spring, and is in the Oils-Energy sector. The stock has seen a price change of 22.22% since the start of the year. The oil and natural gas company is currently shelling out a dividend of $0.95 per share, with a dividend yield of 3.11%. This compares to the Oil and Gas - Integrated - International industry's yield of 2.6% and the S&P 500's yield of 1.57%.
In terms of dividend growth, the company's current annualized dividend of $3.80 is up 3.3% from last year. Over the last 5 years, Exxon Mobil has increased its dividend 4 times on a year-over-year basis for an average annual increase of 1.67%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Exxon's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, XOM expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $9.54 per share, with earnings expected to increase 0.21% from the year ago period.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, XOM is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
