ExxonMobil has a significantly higher dividend yield than the broader market.
The company’s diverse operations and strong balance sheet have led to decades of dividend growth.
Reinvesting dividends over time can significantly increase investment returns.
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The fun of investing in dividend stocks is that each stock is essentially buying passive income that could someday pay the bills.
One way I like to make investment decisions about dividend stocks is to consider how much income I’m getting in return for my capital. For example, investing $3,000 in ExxonMobil.i generate over $100 in passive income annually.
The oil and gas behemoth offers an excellent combination of dividend income and growth, making the stock a vital part of any long-term investor’s dividend portfolio.
Here’s a closer look at ExxonMobil and its revenue opportunities.
Image source: Getty Images.
ExxonMobil is currently trading at around $114 per share. The company pays a quarterly dividend, which it just increased to $1.04 per share. So, each share would pay a dividend of $4.12 per year. So holding 25 shares of ExxonMobil would generate $103 in passive income annually.
At the current stock price, your total investment would be approximately $2,850.
Is it a lot of money to earn $100 in dividends compared to other stocks? Not really. ExxonMobil’s current dividend yield is 3.5% vs S&P 500 the profitability of the index is just 1.1 percent. In other words, if you wanted to get the same amount of income investing in the broader US stock market, you would need more than 3x the capital.
ExxonMobil’s stock price hasn’t risen as fast as the S&P 500 over the past few decades, but that’s the trade-off you make for additional dividend income. Some dividend-oriented investors hope to hold the stock as long as possible to defer paying capital gains taxes, so some may prefer dividend income to price appreciation. This is part of what makes investing a personal process that is unique to everyone.
Why can you count on the oil and gas giant’s dividend, especially if you’re looking to the future?
Past performance is no guarantee of future performance, but ExxonMobil has an impressive track record that speaks to the quality of its business and management team. The company has increased its dividend for 42 consecutive years, a streak that spans multiple recessions and a global pandemic that sent oil prices below zero for the first time.
ExxonMobil’s business is diversified across oil and gas exploration, production, refining and retail, allowing it to make money regardless of oil and gas prices. Additionally, ExxonMobil has a massive $454 billion asset base with a strong, AA-rated balance sheet.
Despite the dramatic growth of renewable energy resources over the past few decades, oil and gas are not going away anytime soon, and this is perhaps even more evident now that data centers are increasing global energy demand. ExxonMobil is likely to remain an important presence in the global energy landscape, which should mean investors can expect a slowly growing dividend in the coming years.
If you plan to buy and hold ExxonMobil shares, you may want to consider reinvesting dividends if you don’t need immediate income. Dividend reinvestment means that any dividends paid out will buy additional shares that also pay dividends.
A $2,850 investment in ExxonMobil would generate almost enough income to buy an additional share in the first year. It may not seem like much, but that extra compounding effect adds up over time. Here’s a look at how dividends have affected ExxonMobil’s total return, which accounts for dividend reinvestment:
XOM data by YCharts
ExxonMobil is probably too big and slow to make you a quick millionaire, but passive income is increasing and can be an effective way to get rich slowly.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
All it takes is $2,850 invested in ExxonMobil to generate over $100 in passive income each year, originally published by The Motley Fool
