XOM Stock Will Rise Even If Oil Price Falls For These 3 Reasons

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  • Exxon Mobil Corp. (NYSE:XOM) has done very well so far this year, as it is already up over 33% year-to-date.
  • As one of the largest oil companies in the world with a market capitalization of $344 billion and growing amounts of free cash flow (FCF).
  • This will fund its dividend and new buyback program, pushing XOM stock even higher.

Exxon Mobil ended last year at $61.19 per share, but as of March 22 it was already at $81.29. This implies that XOM stock is already up 33% year-to-date (YTD), an outstanding performance. However, even if the price of oil drops from here, as long as it’s not too drastic, Exxon stock could still rise.

The reason is its attractive valuation metrics, as well as its shareholder returns. This article will look at three reasons why XOM stock may still rise even if oil goes down.

XOM Exxon Mobil Corp. $81.29

Exxon’s Exceptional Value Features

On Feb. 1, Exxon released stellar absolute results for the fourth quarter and for all of 2021. For example, the company said it generated $48 billion in cash flow from operating activities in 2021. It this was the highest level since 2012. She said this amount was higher. that covered its capital investments, the repayment of its debt, as well as its dividend payments.

The dividend is a very proud point for the company. Throughout the Covid-19 pandemic, it was one of the few companies that did not stop paying its dividend.

In fact, at one point in 2020, Exxon’s dividend yield was well over 10% as the market expected management to cut it. I wrote about this on November 3, 2020, in my article, “Exxon’s Dividend Commitment Is a Strong Sign for Shareholders”.

So if he didn’t cut the dividend then, shareholders can also be sure that management is committed to growing it now as well. For example, the dividend only cost $3.763 billion in the fourth quarter based on page 11 of its earnings release. But its operating cash flow (after working capital changes and asset sales) was well over $17.795 billion (page 7).

In other words, you can see that there is a huge amount of free cash flow (FCF) after deducting the dividends of $3.763 billion from the $17.8 billion (i.e. 14 .0 billion dollars). This FCF can be used to increase the dividend in the future, as well as to repay debt and conduct its new share buyback program.

In fact, two quarters ago, Exxon slightly increased its quarterly dividend from 87 cents to 88 cents. I expect that, given its higher cash flow now, the next dividend increase could be much higher. Expect this to happen towards the end of October 2022.

The new buyback program

At its recent Investor Day on March 2, Exxon detailed its plans for how it would save $9 billion in costs by the end of 2023. This will add to its cash flow and ability to put in place. is implementing its new buyback plan.

He said these structural reductions would allow the company to accomplish the following:

…enable ExxonMobil to double earnings and cash flow potential by 2027 compared to 2019, reduce breakeven costs by approximately $10 per barrel, increase return on capital employed and sustainably increase total shareholder return and distributions.

Exxon previously announced on Feb. 21 that it had launched a $10 billion share buyback program. Exxon had stopped doing so in a major way after 2015, though it has generally repurchased less than $1 billion a year since then. For example, in 2015 Exxon spent over $4 billion in 2015 and in 2012 it bought back over $21 billion of its stock.

It’s unclear how much Exxon will spend on buyouts this year. When Exxon releases its first quarter financials, we’ll see how much it spent, and then we can judge its pace.

How it helps XOM Stock

Buybacks will help drive up the price of XOM shares. This also reduces the number of shares, allowing the dividend per share to increase for the same dividend cost.

So, for these three reasons, we can expect the stock to rise even further, even if oil falls from here. Its cash gains from expense reductions, its regular dividend and its ongoing stock buyback program will all support XOM stock.

As of the date of publication, Mark R. Hake did not hold any position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Eleanor C. William