Three Reasons you should Consider ExxonMobil Long Term
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For those of you who are considering investing long term in a company that you can buy, get your dividends and reinvest, and leave it alone, you might take a look at ExxonMobil (NYSE: XOM) if the company isn't already in your portfolio. Here are three reasons to take a serious look at the company for a long-term investment.
Consistent Dividends and Lots of Money
Exxon increased its dividend to the tune of 21% this year, but it may not be over. Deutsche Bank analyst Paul Sankey believes that there is a good chance CEO Rex Tillerson will raise it again before the year is out. Even though the company came up short this last quarter on analyst expectations, investors aren’t too worried. Earnings were $2.00 instead of $2.11 while profits were a bit down from $10.7 billion to $9.45 billion (year to year). Honestly, who is going to complain when the company sits on $60 billion in cash? They have ample ability to weather any short term storms.
Large Long Term Reserves
If you do not know this yet, ExxonMobil is entering into a partnership arrangement with Russia’s Rothneft. They will work together as first-mover rights to Russia’s vast arctic deposits. There could be as much as 800 billion metric tons of oil equivalent there and it will add about $7 billion in capitalization to the companies. The goal of working together is to develop three fields in the Arctic to recover hydrocarbon reserves estimated at 85 billion barrels of oil equivalent. It was an exclusive deal but there might be a chance that BP (NYSE: BP) might be allowed to access the reserve (and possibly other foreign companies) if Russia loosens up its regulations over exploration.
Long Term Energy Positioning
So what will happen to these large oil companies in the next 15 to 30 years as society changes? Are we still going to be this dependent upon oil? ExxonMobil does not believe so and has been in the process of reinventing itself. It is making a sizable move toward natural gas. The centerpiece of its transformation, of course, was the $35 billion acquisition of XTO Energy in 2010, which allows it to access its fracking expertise. Obviously with the glut in natural gas prices this is not something that will pay off soon. But the company sees natural gas becoming the world’s second largest energy source, surpassing coal by 2025.
Patience is the key to watching ExxonMobil continue to grow as an investor. Having returned 153% to investors over the past 10 years when dividends are taken into account, it should continue to produce just as well over the next decade as fracking gains more global acceptance and energy demand rises to absorb excess supply. The company will be well positioned.
The Motley Fool has no positions in the stocks mentioned above. johnmylant has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
