Exxon Mobil hits 3% yield

[Running_Man]

I think this is the first time since 1996. Very interesting ........

 

[ERD50]

And BP is paying 9.20%. 6.76x P/E (Trailing 12 mo.) and trading about half of recent highs (which had pretty much tracked the S&P).

-ERD50

 

[ronocnikral]

CVX is flirting with 4%...

i'm about to sell my 600 or so shares.

 

[Running_Man]

Yea but Chevron has yielded 4% multiple times. in 1998 I convinced a co-worker that 100% of a portfolio in Mobil was no was to retire and he sold and reallocated 50% of the portfolio. 10 years later after he got his Exxon Mobil back to his sold price he let me know how much I'd cost him. His investment in the S&P500 didn't quite work out the same.

 

[ronocnikral]

if he would have had enron, he'd be kissing your feet. i'll gladly swap lower risk for an average return. my 90% stock allocation is enough risk for me.

 

[MasterBlaster]

Yea but Chevron has yielded 4% multiple times. in 1998 I convinced a co-worker that 100% of a portfolio in Mobil was no was to retire and he sold and reallocated 50% of the portfolio. 10 years later after he got his Exxon Mobil back to his sold price he let me know how much I'd cost him. His investment in the S&P500 didn't quite work out the same.

I am sure that as a good friend you made it up for him

 

[FIRE'd@51]

I think this is the first time since 1996. Very interesting ........

Are you recommending the stock? I would suggest taking a look at the options. A week and a half ago, I sold the July 60-65 strangle at about 4.00. If I get assigned on the put, I sure don't mind buying the stock at 56 (3.14% yield). My upside break-even is 69. This is a trade I feel pretty good about. Worst case, I buy XOM at 56. Since I am already long XOM, I am protected on the upside. If this strangle expires worthless, I will probably rinse and repeat if the option premiums remain high. If the stock is between 60 and 65 at expiration I will have taken in more than 2 years of dividends in less than 2 months. Helps the portfolio cash flow when the yield on a money market fund is 0.05%.

 

[Running_Man]

No I am not recommending XOM, I just find this stock very interesting overall and the fall in valuation a hopeful sign that others will begin to fall to a range of better long term values, since it is such a hugh and liquid stock. XOM on 8/9/09 fell to a "4" in timeliness on the value line ratings when it was at $70 per share and it would take a lot for me to purchase a stock to select one with a "4" in VL timeliness. On the same date CHV also was downgraded to a "4" in timeliness.

Exxon Mobil is obviously a very solid company and certainly is begginning to get into a range where the long term values are worth considering, something I have not felt has been the case for a very long time. I value it right now at 3 percent dividend and 2 percent real growth for a 5 percent expected real return a couple of points short of what I would aim for on a stock. Maybe I'll get a chance to buy it with a 5 percent dividend!


http://www.valueline.com/dow30/f3226.pdf

 

[MasterBlaster]

Exxon Mobil is obviously a very solid company and certainly is beginning to get into a range where the long term values are worth considering

Maybe Yes, maybe no. Peak oil aside, All of the majors have not been able to replace their now dwindling but still substantial oil reserves. The majors are being replaced by sovereign oil companies.

The majors are not growth companies. They are being managed for value.

Buying one of the majors is a bet on oil prices. They certainly aren't growth companies. Long term their business model will only consist of refining/distribution/retail. The upstream business of exploration/production will dwindle.

 

[Texas Proud]

Are you recommending the stock? I would suggest taking a look at the options. A week and a half ago, I sold the July 60-65 strangle at about 4.00. If I get assigned on the put, I sure don't mind buying the stock at 56 (3.14% yield). My upside break-even is 69. This is a trade I feel pretty good about. Worst case, I buy XOM at 56. Since I am already long XOM, I am protected on the upside. If this strangle expires worthless, I will probably rinse and repeat if the option premiums remain high. If the stock is between 60 and 65 at expiration I will have taken in more than 2 years of dividends in less than 2 months. Helps the portfolio cash flow when the yield on a money market fund is 0.05%.

What the heck is a strangle Is this another name for a collar?

More research when I have time...

 

[FIRE'd@51]

What the heck is a strangle Is this another name for a collar?

It's a straddle with the strikes split. I am short the 60 put and also short the 65 call.

 

[brewer12345]

Maybe Yes, maybe no. Peak oil aside, All of the majors have not been able to replace their now dwindling but still substantial oil reserves. The majors are being replaced by sovereign oil companies.

The majors are not growth companies. They are being managed for value.

Buying one of the majors is a bet on oil prices. They certainly aren't growth companies. Long term their business model will only consist of refining/distribution/retail. The upstream business of exploration/production will dwindle.

I would agree that this is definately the case with Exxon. Having said that, XOM does have the ability to buy new reserves whenever it wishes, as was recently proven by the XTO acquisition. So they will do whatever makes the most sense with the capital thrown off by the liquidation of their existing reserve base and their downstream businesses.

 

[MasterBlaster]

XOM does have the ability to buy new reserves whenever it wishes, as was recently proven by the XTO acquisition

Much of the world is now off limits for XON to go explore and develop oil fields. Now the game is to buy oil by buying up existing assets. This shell game will go on, as it always has. Nonetheless the days when XON could call the shots in most of the world are over.

A generation ago, third world countries would welcome major Oil companies to come explore and partner with them. Now that technical expertice is available pretty much everywhere those same countries see no need to cut companies like XON in. XON no longer brings unique capabilities to the game.

The majors are not what they used to be.

 

[wildcat]

Pretty much agree with MB. Even if XOM has the ability to buy resources I ask myself - how much value is there to acquire?

Oil services may be a better way to play the oil sector IMO. They may not have pricing power over their customers but there still could be a lot of business to go around.

FWIW, the long time oil analyst @ Weeden - Charlie Maxwell - has been a big long-term bull on oil but suggests investing in the oil sands space. He has said in the past that the traditional majors will be at a large disadvantage without the ability to grow production in the future when prices are high. Companies like SU will still have the ability to grow production.

 

[ronocnikral]

Maybe Yes, maybe no. Peak oil aside, All of the majors have not been able to replace their now dwindling but still substantial oil reserves. The majors are being replaced by sovereign oil companies.

The majors are not growth companies. They are being managed for value.

Buying one of the majors is a bet on oil prices. They certainly aren't growth companies. Long term their business model will only consist of refining/distribution/retail. The upstream business of exploration/production will dwindle.

I agree with everything but the downstream/upstream prediction.

Downstream is dwindling, major's are cutting back in this area. While NOC's are increasing, they lack the technical expertise to develop anything, and they cut the major's a deal to bring in the expertise. They need the majors...

 

[MasterBlaster]

I agree with everything but the downstream/upstream prediction.

Downstream is dwindling, major's are cutting back in this area. While NOC's are increasing, they lack the technical expertise to develop anything, and they cut the major's a deal to bring in the expertise. They need the majors...

I differ with your post.

After the majors had their late-80's massive layoffs technical expertise was available independent of the majors everywhere. A very modest cash outlay will get whatever is needed. So the technical area is covered by the (now-many) small oil-related technical businesses. If finances are needed there are many who will finance such programs at much better terms than the majors. Deals such as that keep the sovereign resource in-country. They don't have to give away large percentages of their oil anymore.

Name some countries that have recently cut deals to the majors ?

Regarding downstream - aren't all the refineries in this country running flat out ? Where is that business dwindling ?

 

[Running_Man]

Maybe Yes, maybe no. Peak oil aside, All of the majors have not been able to replace their now dwindling but still substantial oil reserves. The majors are being replaced by sovereign oil companies.

Exxon has replaced more than 100 Percent of their production for the last 16 years including replacing 133 percent of their reserves in 2009. As long as you have 25 billion in profits in a world of no cash, if Exxon can avoid BPing themselves they should remain in business and grow at a steady but slow pace.

Essentially I only value stocks any way for the future value of the dividends. I see no reason to change the long term value of current plus 2 percent real growth which at present is giving me a fair value to pay of $44 per share. I use NPV of the next 30 years of dividends using expected growth of dividends over inflation discounted by 3 percent real return over the time period.

At $35 per share (5 percent dividend) Exxon would be a nice value play.

 

[MasterBlaster]

Exxon has replaced more than 100 Percent of their production for the last 16 years including replacing 133 percent of their reserves in 2009. As long as you have 25 billion in profits in a world of no cash, if Exxon can avoid BPing themselves they should remain in business and grow at a steady but slow pace.

Essentially I only value stocks any way for the future value of the dividends. I see no reason to change the long term value of current plus 2 percent real growth which at present is giving me a fair value to pay of $44 per share. I use NPV of the next 30 years of dividends using expected growth of dividends over inflation discounted by 3 percent real return over the time period.

By replace reserves you really mean that they bought reserves from other companies. They didn't find much through exploration.

 

[FIRE'd@51]

Essentially I only value stocks any way for the future value of the dividends. I see no reason to change the long term value of current plus 2 percent real growth which at present is giving me a fair value to pay of $44 per share. I use NPV of the next 30 years of dividends using expected growth of dividends over inflation discounted by 3 percent real return over the time period.

What about the dividend stream beyond 30 years? That could add quite a bit to the NPV. For example, if the dividend were to grow at 2% forever, and you continued to discount it at 3% real, the NPV would be given by the Graham-Shapiro model:

P = 1.76 / (0.03 - 0.02) = 176 per share

Unless you are assuming that XOM will go out of business after 30 years, it seems you may have ignored a large portion of the NPV

 

[haha]

What about the dividend stream beyond 30 years? That could add quite a bit to the NPV. For example, if the dividend were to grow at 2% forever, and you continued to discount it at 3% real, the NPV would be given by the Graham-Shapiro model:

P = 1.76 / (0.03 - 0.02) = 176 per share

Unless you are assuming that XOM will go out of business after 30 years, it seems you may have ignored a large portion of the NPV

Is it even remotely possible to know anything about the energy or geopolitical situation of the world 30 years hence?

I would say no.

Especially if one is convinced by the prospect of relatively near term peak oil-flows, all bets are truly off as this would be unprecedented, as would the political response to it. I would term the current US political system quasi-democracy. If and when peak oil is truly here, I look for no democracy at all.

Ha

 

[FIRE'd@51]

Is it even remotely possible to know anything about the energy or geopolitical situation of the world 30 years hence?

No, of course it's not. In fact, it's probably not possible to do it for 30 years.

My point is that in order to justify an NPV calculation, you must attempt to assume something realistic about the rest of the payment stream. You can't just lop it off and ignore it, without justifying why you are doing so, as it can have a significant contribution to the NPV.

Most analysts use some kind of transition period to a steady-state period which they assume lasts forever to make the NPV calculable, so it becomes a 3-period model, where the last period (the steady-state period) can be calculated with the Graham-Shapiro model, and then that number is discounted back to today, and added to the PV of periods 1 and 2.

For example, if we assume dividend grows at the inflation rate (0% real growth) after 30 years, the PV of the rest of the payment stream is the dividend in year 31 (about 3.20) divided by 0.03 which equals 106. Discounting this back to today at 3% real, gives you another $44, so the NPV would be about 88.

 

[Running_Man]

What about the dividend stream beyond 30 years? That could add quite a bit to the NPV. For example, if the dividend were to grow at 2% forever, and you continued to discount it at 3% real, the NPV would be given by the Graham-Shapiro model:

P = 1.76 / (0.03 - 0.02) = 176 per share

Unless you are assuming that XOM will go out of business after 30 years, it seems you may have ignored a large portion of the NPV

That is correct I do ignore the large portion. My goal is not to compute the true NPV of the company. I have a different set of rules to winnow my selection of what constitutes a suitable dividend stocks, from those selections I need a way of insuring a conservative selection process for what stocks to purchase for the value of the dividends to me - the useful life of the asset is limited to my expected use!

Over time I have beeen able to find the dividend stocks that meet the selection process and give me an unemotional basis to purchase the stocks as well as when to sell or switch the stock.

 

[ronocnikral]

I differ with your post.

After the majors had their late-80's massive layoffs technical expertise was available independent of the majors everywhere. A very modest cash outlay will get whatever is needed. So the technical area is covered by the (now-many) small oil-related technical businesses. If finances are needed there are many who will finance such programs at much better terms than the majors. Deals such as that keep the sovereign resource in-country. They don't have to give away large percentages of their oil anymore.

Name some countries that have recently cut deals to the majors ?

Regarding downstream - aren't all the refineries in this country running flat out ? Where is that business dwindling ?

Fair enough.

I don't have time to go through annual reports, but I can tell you what I know as an upstream engineer (I might be a little biased). My company is laying off people in Downstream (they call it "downstream acceleration" or something). Their financial performance has been poor, and my feeling is that if someone strolled by with the right amount of cash, they could take all our refineries. look at any major's earnings from down stream and then from upstream. as prices rise, margins get smaller and downstream suffers...

As far as countries giving concessions to majors - angola, kazakhstan, kuwait (sort of), Iraq, russia, china, thailand, indonesia, malaysia, brazil...i could go on and on. I'll agree that the concessions of chevron and ibn saud are long gone, but the experience is with the majors. what would be more interesting is to name a country which doesn't give concessions to the majors. i'll name one, saudi arabia. even eni needs to partner with the majors to make most of their assets work.

 

[brewer12345]

OK, so why did natgas futures and onshore producers (UPL, RRC, CHK, BBG, GDP, etc.) Go batsht today? Is this just the markets realizing that natgas is probably the "least evil" hydrocarbon in an atmosphere where the administration is suddenly applying tons of pressure to coalminers, offshore producers, etc.? Why today?

Not that I am compaining, mind you...

 

[Running_Man]

I think it was the lower than expected storage numbers and a higher than expected weather forecast.