Is Exxon Stock a Buy for Its Dividend?
Investors searching for steady income have long relied on dividends as a reliable source of income. If a company holds its market value and continues to pay dividends, shares in the company can be a source of consistent income for the investor. Exxon Mobil Corporation (NYSE:XOM) has long been one of the most reliable dividend stocks available for investors. Regular dividend payments often attract investors willing to pay a premium for these steady Returns. But, is Exxon stock a good buy for its dividend?
Experience of Investing in Exxon Stock
Exxon Mobil Corporation, more commonly known as Exxon stock, has been around since 1870. It is one of the largest publicly traded international oil and gas companies in the world, involved in exploration and production, refining and sales of petroleum products. Over the past several decades Exxon stock has been one of the most consistent dividend-paying stocks available to investors. In addition, the company typically pays out a higher dividend than many of its peers. This has been largely driven by ExxonMobil’s strong focus on free cash flow and dividends remain one of the most important ways it returns value to shareholders. As of April 2021, the annual dividend yield was 6.41% and the annual dividend payout per share was $3.44.
Pros of Investing in Exxon Dividend Stock
Investing in Exxon dividend stock offers a variety of benefits for investors. Here are some of the major advantages of investing in Exxon stock for its dividend:
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Long History of Consistent Dividends: Over the last two decades, Exxon stock has consistently paid a strong dividend. The company has been paying dividends since it was first listed on the NYSE in 1882.
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Safety of Dividend Payments: Despite the low price of oil, Exxon has managed to maintain its dividend payment rate. This shows the company’s ability to perform well even during difficult times.
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Low Volatility: Exxon stock has been one of the least volatile dividend stocks in recent years. This is a reflection of the company’s stable financial position.
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Generous Yield: The current dividend yield of 6.41% is significantly higher than the current yield of the S&P 500, making it an attractive investment for income-hungry investors.
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Growth Potential: Since Exxon stock is heavily reliant on crude oil prices, any upward movement in the latter will be beneficial for the company’s long-term growth.
Risks of Investing in Exxon Dividend Stock
Before investing in Exxon dividend stock, it is important to understand the risks and challenges associated with the stock. Here we highlight some of the major risks of investing in Exxon stock for its dividends:
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Low Oil Prices: Exxon stock is heavily reliant on the price of oil. Any declines in the price of oil would significantly hurt Exxon’s bottom line and impact its dividend payments.
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Low Demand: Demand for oil can also be volatile and could take a hit during economic downturns, which could hurt the company’s long-term profitability and dividend payments.
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Dependence on Fossil Fuels: Exxon is heavily dependent on the production of fossil fuels and any changes to environmental regulations or the development of new energy sources could negatively impact the company’s revenues and dividend payments.
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Political Risk: Oil and gas prices are also greatly affected by international politics, and any negative changes in the geopolitical environment could result in lower oil prices and a decrease in Exxon’s dividend payments.
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Currency Risk: Exxon stock is also exposed to currency risk, as it produces and sells products in various countries all over the world. If the U.S. dollar weakens relative to other currencies, it can have a negative impact on the company’s revenues and dividend payments.
Exxon stock has consistently paid high dividends every year and offers an attractive yield of 6.41%. However, it also carries a number of risks such as low oil prices, low demand, dependence on fossil fuel, and currency risks. Investors should evaluate their risk appetite and make an informed decision before investing in Exxon stock for its dividend. That being said, for investors willing to shoulder the risks associated with this dividend stock, Exxon may provide an attractive opportunity to generate safe, steady income.
