Wednesday, February 1, 2023

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Cash Flow Is Gushing for This Blue Chip Dividend Stock

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

2019 and 2020 were not good for Exxon Mobil (NYSE: XOM)... or the rest of the oil industry.

Oil prices plummeted, famously turning negative for a brief moment. As a result, oil companies' free cash flow evaporated.

Exxon's free cash flow fell by two-thirds in 2019 and was a horrific negative $2.6 billion in 2020. However, oil prices have since reversed and Exxon's free cash flow has rebounded strongly.

Chart: Exxon's Free Cash Flow
 

This year, Exxon's free cash flow is projected to slip to $44.4 billion, a marked decline from last year's $58.4 billion but still sharply above the 2021 total.

Importantly, the company paid $14.9 billion in dividends in 2022, for a payout ratio of just 26%. This year, based on the $44.4 billion in predicted free cash flow, the payout ratio is estimated to be just 34%. While that is a meaningful jump from last year's, it remains well within my comfort level. I like to see companies pay 75% or less of their free cash flow in dividends.

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Four Decades and Counting

Exxon's current quarterly dividend is $0.91 per share, giving it a 3.2% yield. It has raised its dividend every year for 40 years.

It has never cut its dividend since it began paying one in 1911. How's that for an impressive dividend-paying history?

Despite free cash flow that is forecast to decline this year, considering Exxon has never reduced its dividend in more than 100 years of paying one and free cash flow will easily cover the dividend, there is very little chance Exxon will cut its dividend in the near future.

Dividend Safety Rating: A

Dividend Grade Guide
 

If you have a stock whose dividend safety you'd like me to analyze, leave the ticker symbol in the comments section.

Also, be sure to see whether I've written about your favorite stock recently. Just click on "Search" at the top right part of the page, type the name of the company and hit enter.

Good investing,

Marc

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