ExxonMobil(NYSE: XOM) is among the dividend elite, having increased its payout for more than 40 straight years. The company currently offers a yield of over 3%, which is more than double the S&P 500. With more growth ahead, it's an excellent option for dividend investors.
While ExxonMobil is the top dog in the oil patch, rival ConocoPhillips(NYSE: COP) is no slouch. It pays a competitive dividend (a forward yield of nearly 3%) that it expects to increase at an elite rate in the future. That makes it an attractive oil stockfor those seeking a faster rising income stream.
A slow and steady dividend stock
ExxonMobil is the 800-pound gorilla of the oil sector. The company generated $9.2 billion in profits in the second quarter, $4.3 billion in dividends (the second-most in the S&P 500), and it repurchased $5.2 billion of its shares for good measure. All three figures make it the leader among its peers
Exxon expects its profits to fall when it reports its third-quarter results, due to weaker oil prices and refining margins in the period, but its earnings should grow in the future. It's investing heavily in its highest-margin assets while also working to remove billions of dollars in costs. Add that to its elite balance sheet, and the company should have no trouble continuing to increase its dividend.
Management will likely maintain a modest dividend growth rate. It has increased its payout by around 4% annually over the past decade. That's slower than the S&P 500 and chief rival Chevron, which have raised their dividend by about 6% annually over the last five years. Still, if you're looking for a rock-solid, higher-yielding dividend that will steadily grow, Exxon is a top choice.
A higher-octane option
ConocoPhillips doesn't have nearly the track record as Exxon when it comes to boosting its dividend. The company had to reduce it in 2016 after oil prices crashed, slashing its quarterly payment from $0.74 per share all the way down to $0.25.
However, ConocoPhillips has steadily rebuilt it over the years. It has strengthened its portfolio and balance sheet by selling off lower-margin assets and using the cash to repay debt and fund higher-returning investments. The company currently pays $0.58 per share each quarter and a $0.20 per share variable return of cash (VROC).
Management plans to continue increasing its dividend after closing its pending $22.5 billion acquisition of Marathon Oil. That deal will be immediately accretive to its earnings, cash flow, and return of capital per share. And the company expects to capture $500 million of cost and capital savings in the first year following the deal's closing.
Acquiring Marathon will further deepen the company's portfolio by adding significant high-quality resources with a low costof supply. That indicates the company will produce lots of free cash flow in the future, the bulk of which it plans to return to shareholders.
ConocoPhillips expects to buy back over $20 billion of its shares in the first three years following the acquisition of Marathon, which should offset the equity it's issuing to close the transaction (about $17.1 billion after adjusting for Marathon's net debt) in two to three years.
After closing the deal, the company plans to increase its quarterly dividend by 34% by making the current VORC payment permanent once it completes the acquisition. That will raise its quarterly payout to $0.78 per share, which is above its prior peak and make it a leader in dividend increases.
ConocoPhillips aims to be in the top 25% of companies in the S&P 500 when it comes to raising its dividend. Because of that, you could collect a lot more income from this oil stock in the coming years than you would by investing in ExxonMobil right now.
Higher-income potential
ExxonMobil is one of the lowest-risk dividend stocks in the oil patch. Because of that, it's great if you are seeking an attractive payment that should slowly rise over the long term.
On the other hand, ConocoPhillips offers much higher potential for dividend increases. Because of that, you should collect more cash from this oil stock over the long term. That faster growth from a stock with a high dividend yield makes it a very attractive investment.
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Matt DiLallo has positions in Chevron and ConocoPhillips. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
