Battle of the Dividend Aristocrats: Exxon Mobil vs. Chevron

Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) have raised their dividends for 38 and 33 consecutive years, respectively. As a consequence, they each belong to the group of dividend aristocrats. In reality, because the oil business is extremely cyclical with dramatic boom-and-bust cycles, Exxon and Chevron are the one two oil firms on the dividend aristocrats listing. Source: iQoncept/ These two oil majors have many comparable options, however it’s important for revenue traders to look at the variations between the 2 oil giants so as to choose the higher of the 2 dividend aristocrats for his or her portfolio. Business Model Analysis Exxon produces oil and pure gasoline at a 60/40 ratio whereas Chevron produces them at a 61/39 ratio. However, Chevron costs a good portion of its pure gasoline based mostly on the value of oil. As a consequence, roughly 75% of Chevron’s manufacturing is priced based mostly on the oil value. This signifies that Chevron is far more delicate to the oil value than Exxon.InvestorPlace – Stock Market News, Stock Advice & Trading Tips Exxon has a extra built-in enterprise mannequin than Chevron, as its downstream (largely refining) and chemical segments generate a good portion of its earnings. Chevron generates most of its earnings from its upstream phase. Given the excessive sensitivity of Chevron to the value of oil, it is just pure that Exxon has proved extra resilient than Chevron to downturns within the power sector. For occasion, within the downturn attributable to the collapse of the oil value from $100 in mid-2014 to $26 in 2016, Exxon incurred a 75% lower in its earnings-per-share (EPS). But Chevron noticed all its earnings evaporate and posted a loss in 2016. While Exxon has proved extra defensive than Chevron in all of the earlier downturns, this has not proved to be the case within the ongoing novel coronavirus disaster. The pandemic triggered not solely suppressed oil costs in 2020, but in addition depressed refining and chemical margins. As a consequence, the refining and chemical segments didn’t present the help they used to supply to the entire outcomes of Exxon and therefore the oil main posted its first loss in additional than a decade in 2020. 7 Great Stocks to Buy Under $10 Chevron posted a loss final yr as nicely, however it proved extra resilient than it was in earlier recessions. The firm realized its lesson nicely from the earlier downturn and has drastically improved its asset portfolio since then by investing in low-cost, high-margin barrels. Thanks to the high-grading of its portfolio, Chevron posted file free money flows in 2018 and 2019 and achieved free money flows of $5.6 billion in 2020, in some of the extreme downturns within the historical past of the power sector. To present perspective, Exxon posted damaging free money flows of $5.Three billion final yr. Overall, Exxon has historically proved extra defensive than Chevron in earlier downturns. But this benefit has diminished in recent times, primarily as a result of shift of Chevron to low-cost, high-margin reserves. Growth Prospects Exxon and Chevron have outstanding variations of their development information and development prospects. Chevron grew its manufacturing by 5% per yr on common in 2017-2019. Even in 2020, when most oil producers curtailed their output, Chevron grew its manufacturing 1%. This is in sharp distinction to Exxon, which has did not develop its manufacturing within the final 12 years. Its manufacturing has remained basically flat, round 4 million barrels per day, since 2008. Even worse, as a result of pandemic, its output decreased 5% final yr, from 3.95 million to three.76 million barrels per day. Until lately, the one comfort for the shareholders of Exxon was its promising outlook. The firm anticipated to develop its manufacturing 32%, from 3.eight million barrels per day to 5 million barrels per day by 2025. However, administration lately pulled its steering and acknowledged that it now expects flat output at 3.7 million barrels per day till 2025. This is a serious setback after so a few years of stagnation. Exxon has two main development drivers, particularly its reserves offshore in Guyana and the Permian Basin. Guyana is likely one of the most fun tasks within the oil business. Exxon has almost tripled its reserves within the space, from 3.2 billion barrels in early 2018 to almost 9 billion barrels now. The firm additionally expects to develop its output within the Permian Basin, from 400,000 barrels per day this yr to 700,000 barrels per day in 2025. However, Exxon has indefinitely postponed different development tasks, such because the $30 billion Mozambique LNG export challenge. Consequently, the pure decline of its oil fields will offset the expansion anticipated from Guyana and Permian. Chevron has higher development prospects than Exxon. The firm has greater than doubled the worth of its belongings within the Permian within the final two years because of new discoveries and technological advances. It additionally expects important development from its tasks in Australia. As a consequence, Chevron expects to develop its manufacturing by 3% to 4% per yr on common within the upcoming years. Dividend Comparison Exxon is presently providing a 6.2% dividend yield, which is greater than the 5% dividend yield that Chevron is providing. However, it is very important understand that Exxon is struggling greater than Chevron to take care of its dividend. Exxon has a dividend payout ratio of 155%, which is far greater than the 82% payout ratio of Chevron. In addition, as talked about above, Chevron generates a lot greater free money flows than Exxon. In 2020, Chevron achieved free money flows of $5.6 billion and thus coated 58% of its annual dividend funds. On the opposite, Exxon posted damaging free money flows of -$5.Three billion. Thus, it incurred a money move deficit of -$20.1 billion relative to its dividend. This helps clarify why many analysts are involved over the security of Exxon’s dividend. Meanwhile, the security of Chevron’s dividend has hardly been talked about. In addition, Exxon’s extreme free-cash-flow deficit is the primary purpose behind its poor steering for future development. The firm has drastically restricted its development tasks so as to protect money and defend its dividend. Final Thoughts on These Dividend Aristocrats Thanks to its extra built-in enterprise mannequin, Exxon was once extra resilient to downturns than Chevron. However, this benefit of Exxon has diminished in recent times. Exxon is providing the next dividend yield than Chevron, however it’s struggling greater than Chevron to take care of its dividend, as evidenced by its inferior payout ratio and money move deficit. In addition, so as to defend its dividend, Exxon has curtailed its development tasks. Thus, it has worse development prospects than Chevron. As a consequence, Chevron appears to be the higher of those dividend aristocrats for revenue traders. On the date of publication, Bob Ciura didn’t have (both instantly or not directly) any positions within the securities talked about on this article. Bob Ciura has labored at Sure Dividend since 2016. He oversees all content material for Sure Dividend and its accomplice websites. Prior to becoming a member of Sure Dividend, Bob was an impartial fairness analyst. His articles have been printed on main monetary web sites equivalent to The Motley Fool, Seeking Alpha, Business Insider and extra. Bob obtained a bachelor’s diploma in Finance from DePaul University and an MBA with a focus in investments from the University of Notre Dame. More From InvestorPlace Why Everyone Is Investing in 5G All WRONG It doesn’t matter in case you have $500 in financial savings or $5 million. Do this now. Top Stock Picker Reveals His Next Potential 500% Winner Stock Prodigy Who Found NIO at $2… Says Buy THIS Now The put up Battle of the Dividend Aristocrats: Exxon Mobil vs. Chevron appeared first on InvestorPlace.

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