The oil industry has had its share of ups and downs over the decades. Crude prices have varied wildly over the years. They even briefly went negative during the pandemic, only to spike into the triple digits after Russia invaded Ukraine. That stomach-turning volatility has made it difficult for many oil companies to maintain their dividends over the years, let alone continue increasing their payouts.
That's what makes ExxonMobil's(NYSE: XOM) dividend history so remarkable. The oil giant has managed to increase its dividend every year for more than four decades. That puts it in a rare group of not only oil stocks but also members of the S&P 500.
Dividend royalty
ExxonMobil recently reported its third-quarter results and declared its latest dividend payment. The oil company's results were absolutely terrific and overshadowed the fact that it raised its dividend once again. The company boosted its payment by 4% for the fourth quarter to $0.99 per share. That further extended its dividend growth streak.
CEO Darren Woods took some time during the oil giant's third-quarter earnings conference call to highlight its dividend prowess:
We've now increased our annual dividend for 42 years in a row, putting us in an elite tier of companies known as Dividend Aristocrat® (the term Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC). Less than 4% of S&P 500 companies have paid higher dividends every year for more than 40 years. ... We know how important the dividend is to our investors, particularly our millions of retail shareholders. We remain committed to a sustainable, competitive, and growing dividend, which is a key component of the attractive total shareholder return we are delivering.
Exxon's CEO noted that it has increased its payment for more than 40 years in a row, a feat fewer than 4% of S&P 500 members have achieved. That's partly because many companies haven't been around that long. However, it's also due to Exxon's ability to deliver resilient results throughout the economic cycle. The oil giant has long maintained a fortress-like balance sheet, which enables it to continue investing to grow its business and increase its dividend during periods of lower oil prices. The company also has an integrated business model, producing oil and gas, operating midstream infrastructure, and owning downstream refining and chemicals assets, which all helps mute some of the volatility of oil and gas prices and maximize the value of every hydrocarbon molecule it produces.
A top dividend payer
Woods also highlighted something else noteworthy about Exxon's dividend on the call, saying, "We've also sustained our position in the top five of all S&P 500 companies with the largest dividends paid." Exxon paid out $4.2 billion in dividends during the second quarter and $12.3 billion year to date. Thanks partly to its outsize payout, Exxon currently offers a more than 3% dividend yield, which is also attractive relative to the S&P 500's current yield of less than 1.5%.
Exxon can easily afford its massive dividend payment. The company has produced $42.8 billion of cash flow from operations through the first nine months of the year and $26.4 billion in free cash flow after funding the capital expenditures needed to maintain and grow its business. Exxon returned $26.1 billion in cash to shareholders through dividends and share repurchases. Even with that monster cash return, Exxon maintained an elite balance sheet, with a $27 billion cash balance and a low 5% net debt-to-capital ratio. That gives it tremendous flexibility to weather future storms in the oil market. It can continue increasing its dividend and investing heavily in expanding its business during a prolonged period of much lower oil prices.
An elite dividend stock
ExxonMobil has delivered more than 40 years of consistent dividend growth, which is rare among S&P 500 members. It's also one of the largest dividend payers and has an above-average yield. These factors make it a great dividend stock to hold for the long term, especially since Exxon's extremely conservative financial profile should enable it to continue growing its business and dividend in the future.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.
