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Big Oil - Sell/Hold/Buy
Old 12-09-2017, 04:36 PM   #1
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Big Oil - Sell/Hold/Buy

I just inherited a substantial stake in Exxon Mobil (XOM) and my gut feeling is to sell most of it as I think Big Oil is going to be hurting in the near future.

It pays a nice dividend but the payout ratio is a bit above 100% so might not be sustainable.

I'd rather take a small short term gain now than a big tax loss in the future.
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Old 12-09-2017, 05:01 PM   #2
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I think Big Oil is going to be hurting in the near future.

I'd rather take a small short term gain now than a big tax loss in the future.
Sell. Particularly if this would be a big percent of your portfolio.
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Old 12-09-2017, 05:04 PM   #3
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Agree.
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Old 12-09-2017, 05:23 PM   #4
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I just inherited a substantial stake in Exxon Mobil (XOM) and my gut feeling is to sell most of it as I think Big Oil is going to be hurting in the near future.

It pays a nice dividend but the payout ratio is a bit above 100% so might not be sustainable.

I'd rather take a small short term gain now than a big tax loss in the future.
Did the same thing in 2014 and never looked back. Sold Chevron and BP after inherited.
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Old 12-09-2017, 05:31 PM   #5
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XOM tracks the price of oil. If you think oil prices won't rise anytime soon, it might be time to move from XOM to something else.
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Old 12-09-2017, 05:35 PM   #6
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No one knows what any stock or, for that matter any sector, will do in the future. That is why we diversify away individual stock and individual sector risk.
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Old 12-09-2017, 07:47 PM   #7
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No one knows what any stock or, for that matter any sector, will do in the future. That is why we diversify away individual stock and individual sector risk.
+1

This is really simple. There is no reason to hang onto a stock because it was inherited.

Here's the "acid test": If you had inherited that $X amount in cash, would you have gone out and bought XOM? Very unlikely. So why own it now?

Sell and diversify. XOM might do better than average, might do worse, but it's not a game I chose to play.

-ERD50
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Old 12-09-2017, 08:06 PM   #8
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+1

This is really simple. There is no reason to hang onto a stock because it was inherited.

Here's the "acid test": If you had inherited that $X amount in cash, would you have gone out and bought XOM? Very unlikely. So why own it now?

Sell and diversify. XOM might do better than average, might do worse, but it's not a game I chose to play.

-ERD50
I did inherit some cash and I sure as heck would not buy XOM with it. It was a VERY good stock for my parents, but that was then. In addition, this has pushed my AA much deeper into stocks than I am comfortable with.
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Old 12-09-2017, 08:23 PM   #9
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I wouldn't sell it all especially if you have taxable gains. Sell some each year so it doesn't hurt too much with taxes. I think it is a solid stock long term so not bad to keep some of it.
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Old 12-09-2017, 08:28 PM   #10
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I agree, sell half of it now.
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Old 12-09-2017, 08:32 PM   #11
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I wouldn't sell it all especially if you have taxable gains. Sell some each year so it doesn't hurt too much with taxes. I think it is a solid stock long term so not bad to keep some of it.
If itís recently inherited taxable gains if any should be tiny.
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Old 12-09-2017, 08:34 PM   #12
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If itís recently inherited taxable gains if any should be tiny.
In that case, I would probably keep about 1% of my portfolio worth as a legacy. Just hold it forever and take the dividend.
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Old 12-09-2017, 08:54 PM   #13
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If itís recently inherited taxable gains if any should be tiny.
Correct, only a couple of hundred bucks right now. I just think the demand for oil is going to decrease in the future and the payout ratio for the dividend is over 100% which makes me think a cut could happen. I think I could sleep better rolling it into Wellington.
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Old 12-09-2017, 10:21 PM   #14
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Correct, only a couple of hundred bucks right now. I just think the demand for oil is going to decrease in the future and the payout ratio for the dividend is over 100% which makes me think a cut could happen. I think I could sleep better rolling it into Wellington.
And you will still own some of it inside Wellington I would bet.....

better diversification for sure.
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Old 12-10-2017, 10:12 AM   #15
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I certainly wouldn't be buying XOM now, but don't count them out, either. There will be winners and losers in a diversified, decentralized and renewable energy future. Among the winners will be some "old" companies with deep pockets and a long history in the industry. Maybe even XOM. Also, I suspect the newer energy technologies will have smaller margins but less volatility compared to oil.
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Old 12-10-2017, 10:26 AM   #16
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... I just think the demand for oil is going to decrease in the future and the payout ratio for the dividend is over 100% which makes me think a cut could happen. ...
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I certainly wouldn't be buying XOM now, but don't count them out, either. There will be winners and losers in a diversified, decentralized and renewable energy future. Among the winners will be some "old" companies with deep pockets and a long history in the industry. Maybe even XOM. Also, I suspect the newer energy technologies will have smaller margins but less volatility compared to oil.
All possibly true, but these views are hardly new news. They are already priced into the value of the stock. Basically, the current price point is where the optimists and the pessimists balance each other out. Little guys like us are highly unlikely to have special information that would give us any more insight into random future events, and we probably have far less information than the professional XOM traders do.
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Old 12-10-2017, 10:32 AM   #17
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Just sold all my XOM (last week @ 83+) but will buy again when it dips back into the upper 70s and/or a few days before the next XDIV date in early Feb.
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Old 12-10-2017, 10:48 AM   #18
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I personally own some XOM and CVX oil stocks (and a couple other Dividend Aristocrat stocks) for the >3% dividends. I use them in place of a portion of my bond fund allocation because: (1) dividend is higher than my conservative bond fund return (2) and some potential for capital appreciation and (3) I have enough other fixed assets, I wouldn't need to sell these stocks in a downturn.

However, my purchases of XOM have only been when I thought they were reasonably priced and I have sell points that are well within their normal fluctuation and worth ~3 yrs of dividends. For example, last XOM purchase was ~81 (ok but not great) and I'll sell it if it reaches ~90. Happily collect the dividend in the meantime. The purchase before that I bought at 63-64 and sold at 89 but that was pure luck to catch the flash crash in Aug '15.

Unless XOM fits your investment plan in some obvious way, I'd follow the advice many have given you and replace the individual stock with some more diversified fund that fits your plans. I wouldn't hold it only for capital gain reasons in the current environment of relatively high supply which is limiting oil prices.
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Old 12-10-2017, 11:04 AM   #19
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If it’s recently inherited taxable gains if any should be tiny.
^^ This.

The tax basis of your inherited stock is the value of the stock on the day the person died (unless an alternative valuation date is declared by the estate).

DH & I were in the same situation as OP a few years ago, he inherited stock in XOM and a couple of utilities. We weren't comfortable owning individual stocks (particularly XOM) so we sold it. XOM went down a bit between the dod and the sell dates so we were able to take a small capital loss to offset other gains. It was a win win for us.
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Old 12-10-2017, 11:30 AM   #20
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... and the payout ratio for the dividend is over 100% which makes me think a cut could happen.
Exxon is not going to reduce the dividend. The payout ratio was above 100% in 2016 due to lower earnings, particularly when oil went below $30 early in the year. YTD 2017, Exxon has posted profits of $2.66 per share while paying dividends of $2.29 per share. Profits should also continue to rise modestly over the coming 12 months. Also understand that Exxon is sitting on $41 billion in cash and investments, which is up from a year ago.

I'm not suggesting that Exxon is a great investment. However, I wouldn't cite a potential dividend reduction as a reason to justify selling.
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