Dividend stock bargain #3: An oil & gas giant at almost half price

So far in this series of posts on dividend stocks that are currently trading at “bargain” prices I’ve highlighted a high-yielding utility stock and a top drugstore chain with a fast-growing dividend. In this post I look at the world’s largest publicly owned integrated oil company, which is of course Exxon Mobil [[XOM]], a five-star dividend payer (according to DividendInvestor.com) whose shares are now priced almost 40% below their 2008 highs:

Stock chart for dividend stock Exxon Mobil

Exxon Mobil explores for, produces and refines oil around the world, and is also one of the world’s largest makers of commodity and specialty chemicals. The company also just completed an all-stock acquisition of natural gas producer XTO Energy, a move designed to enhance its position in the development of unconventional natural gas (e.g., shale) and a big bet on the future of that energy source.

Exxon’s earnings traditionally have offered a high degree of stability, however, as the stock price reflects, risks do exist including near-term dilution from the XTO merger, increased production costs, lower oil and gas prices, currency risk (the company benefits from a weaker dollar), competition, potential legislative/regulatory risks, and potential costs associated with further acquisitions (including even recent speculation that BP could be a target).

Positives include the company’s strong operating and dividend history, its diversification with the XTO merger, and the projected continued long-term uptrend of fossil fuel use. The company is also one of only a handful remaining that are AAA-rated by Standard & Poor’s and other ratings agencies.

Currently trading at $58 and yielding almost 3%, shares of XOM are clearly in an intermediate-term downtrend and appear likely to test downside support in the mid $50s. However, they’re also at intermediate-term oversold levels and at or near longer-term oversold levels, which could suggest a possible bottom of some significance being formed in the coming weeks/months.

Valuation wise, XOM is trading near the low end of its current calculated fair value estimates, which range from the mid $50s to over $150 depending on the method used and earnings assumptions being made. As always, to be conservative, I use the lower estimate as a reference and then look to buy at or below that level. (This value is always somewhat of a moving target subject to revisions in earnings projections and growth rates.)

In terms of dividends, despite the company’s preference for stock buybacks it has managed to achieve an excellent dividend growth record (as evidenced by its inclusion in Standard & Poor’s index of Dividend Aristocrats), with 27 years of consecutive dividend increases and a current average 5-year dividend growth rate of over 9%. I currently have a bullish options position in XOM whereby I could be “put” the stock if it trades below $50 between now and when the options expire in January, but would also consider going long the stock outright in the mid $50s or lower.

For some other recent takes on XOM see the following links:

From Barron’s (via Google for full article): ExxonMobil Seen With 40% Upside
From Seeking Alpha: Why It’s an Opportunity to Buy Exxon
From Dividend Tree: Exxon Mobil – Priced to Buy for Dividend Growth Portfolio
From Dividend Growth Investor: Exxon Mobil (XOM) Dividend Stock Analysis
From Ockham Research: XOM Stock Evaluation

Related posts:
Dividend stock bargain: A high-yielding utility stock on sale
Dividend stock bargain #2: A top drugstore chain at a discount
The highest dividend yields of the Dow

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