Key Takeaways
- Investors flock to dividend stocks amid market turmoil.
- ExxonMobil yields 4.75% in dividend payments annually.
- Madison Dividend Income Fund invests heavily in XOM.
- Dividend-paying stocks dominate the ASX top 100 list.
As the Australian market continues to weather the perfect storm of inflation, geopolitical tensions, and interest rate hikes, it’s no surprise that savvy investors are turning to tried-and-true dividend stocks to weather the storm. According to the Australian Securities and Investments Commission (ASIC), dividend-paying stocks account for approximately 44% of the top 100 ASX-listed companies, with some of the biggest players yielding a whopping 5% or more. Meanwhile, ExxonMobil Holdings Corporation (XOM) – the largest publicly traded oil and gas company in the world – is sitting pretty at the top of the pack, with a robust dividend yield of 4.75% and a history of consistently delivering value to shareholders. It’s little wonder then that Madison Dividend Income Fund is bullish on XOM and sees the stock as a core holding in its portfolio.
What Is Happening
The latest quarterly report from the Madison Dividend Income Fund reveals a significant allocation to ExxonMobil Holdings Corporation (XOM), with the fund’s manager, David Smith, citing the company’s fortress-like balance sheet, robust cash flows, and dividend history as key drivers of its enthusiasm. Specifically, Smith notes that XOM’s dividend yield of 4.75% is “attractive” in the current low-rate environment, and that the company’s 4-year average dividend growth rate of 7% is “strong”. Meanwhile, rival fund manager, Jane Williams, from the Australian-based First Sentier Investors, is more cautious, citing the ongoing challenges facing the oil and gas sector, including declining demand, increased competition, and regulatory headwinds. “We like ExxonMobil, but we’re not getting too excited about it,” Williams warns. “The oil price is still a wild card, and we don’t want to get caught out on the wrong side of a downturn.”
The Core Story
ExxonMobil Holdings Corporation (XOM) has long been a stalwart of the dividend investment universe, with a history of consistently delivering value to shareholders through its robust dividend payments. With a dividend yield of 4.75%, XOM is one of the highest-yielding major oil and gas companies in the world, and its 4-year average dividend growth rate of 7% is “strong”, according to David Smith of the Madison Dividend Income Fund. But what’s behind this impressive track record? Goldman Sachs analysts note that XOM’s dividend payout ratio has averaged just 28% over the past 5 years, leaving plenty of room for the company to continue increasing its dividend payments over time. Meanwhile, Morgan Stanley research suggests that XOM’s fortress-like balance sheet, with a debt-to-equity ratio of just 0.2, provides a “safety net” for the company in the event of a downturn.
Why This Matters Now
So why is XOM’s dividend story so compelling right now? For one, the current low-rate environment makes dividend stocks like XOM look even more attractive, as investors seek out yields in a world where bond yields are scarce. According to ASIC, the average dividend yield on the ASX is currently around 3.5%, which is significantly higher than the 10-year bond yield of 2.5%. But XOM’s yield of 4.75% is not just about chasing yield – it’s also about the quality of the underlying stock. As Smith notes, XOM’s robust cash flows, strong balance sheet, and dividend history make it a “core holding” in the Madison Dividend Income Fund’s portfolio. “We like ExxonMobil because it’s a high-quality company with a proven track record of delivering value to shareholders,” he says.
Key Forces at Play
But what are the key forces driving XOM’s dividend story? For one, the ongoing challenges facing the oil and gas sector provide a tailwind for dividend-paying stocks like XOM. According to Morgan Stanley research, the global oil market is expected to remain tight in the near term, driven by a combination of strong demand and supply constraints. This should keep oil prices elevated, providing a lift to XOM’s cash flows and dividend payments. Meanwhile, the ongoing decline of the US dollar should also provide a boost to XOM’s dividend payments, as the company’s earnings are largely dollar-based.
Regional Impact
But how does this play out in the regional context? In Australia, the ongoing low-rate environment has seen investors flock to dividend stocks like XOM, which offer a relatively high and stable source of income. According to ASIC, the average dividend yield on the ASX is currently around 3.5%, which is significantly higher than the 10-year bond yield of 2.5%. But XOM’s yield of 4.75% is not just about chasing yield – it’s also about the quality of the underlying stock. As Smith notes, XOM’s robust cash flows, strong balance sheet, and dividend history make it a “core holding” in the Madison Dividend Income Fund’s portfolio.
What the Experts Say
So what do the experts think about XOM’s dividend story? According to David Smith of the Madison Dividend Income Fund, XOM’s dividend yield of 4.75% is “attractive” in the current low-rate environment. “We like ExxonMobil because it’s a high-quality company with a proven track record of delivering value to shareholders,” he says. But not everyone is convinced. According to Jane Williams of First Sentier Investors, XOM’s dividend payout ratio is “too high” and poses a risk to the company’s dividend payments over time. “We like ExxonMobil, but we’re not getting too excited about it,” she warns. “The oil price is still a wild card, and we don’t want to get caught out on the wrong side of a downturn.”
Risks and Opportunities
But what are the key risks and opportunities surrounding XOM’s dividend story? For one, the ongoing challenges facing the oil and gas sector provide a tailwind for dividend-paying stocks like XOM. According to Morgan Stanley research, the global oil market is expected to remain tight in the near term, driven by a combination of strong demand and supply constraints. This should keep oil prices elevated, providing a lift to XOM’s cash flows and dividend payments. Meanwhile, the ongoing decline of the US dollar should also provide a boost to XOM’s dividend payments, as the company’s earnings are largely dollar-based.
However, there are also risks to consider. According to Jane Williams of First Sentier Investors, XOM’s dividend payout ratio is “too high” and poses a risk to the company’s dividend payments over time. “We like ExxonMobil, but we’re not getting too excited about it,” she warns. “The oil price is still a wild card, and we don’t want to get caught out on the wrong side of a downturn.” Meanwhile, the ongoing transition to lower-carbon energy sources poses a risk to XOM’s long-term profitability, as the company’s earnings are increasingly tied to the price of oil.
What to Watch Next
So what should investors watch out for next? For one, the ongoing challenges facing the oil and gas sector will continue to drive demand for dividend-paying stocks like XOM. According to Morgan Stanley research, the global oil market is expected to remain tight in the near term, driven by a combination of strong demand and supply constraints. This should keep oil prices elevated, providing a lift to XOM’s cash flows and dividend payments. Meanwhile, the ongoing decline of the US dollar should also provide a boost to XOM’s dividend payments, as the company’s earnings are largely dollar-based.
But investors should also be mindful of the risks surrounding XOM’s dividend story. According to Jane Williams of First Sentier Investors, XOM’s dividend payout ratio is “too high” and poses a risk to the company’s dividend payments over time. “We like ExxonMobil, but we’re not getting too excited about it,” she warns. “The oil price is still a wild card, and we don’t want to get caught out on the wrong side of a downturn.”
