Big Oil

  There’s not many things in this world as big as Big Oil. And anywhere Big Oil is talked about, the names of two companies always enter the conversation. Those companies are ExxonMobil Corporation (XOM) and Chevron Corporation (CVX). They’re also two names on the Dividend Aristocrat List because of their consistency in delivering an increasing flow of dividends annually to its shareholders. It’s those dividends and being included on the list of Dividend Aristocrats that are attractive to me. But simply being on the Dividend Aristocrats List is not enough. I just won’t make any decisions on whether to accumulate any stock in any company without looking at that company's revenues, earnings and its stock chart. 

  ExxonMobil Corporation engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products. The company also transports and sells crude oil, natural gas, and petroleum products. It has approximately 37,228 gross and 31,264 net operated wells. The company manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene, polypropylene plastics, and specialty products. It also has interests in electric power generation facilities. The company has a strategic cooperation agreement with Rosneft to jointly participate in exploration and development activities in Russia, the United States, and other parts of the world. It operates in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. ExxonMobil Corporation today is a result of a merger between Exxon Corporation and Mobil Corporation effective December 1, 1999 and a subsequent merger with XTO Corporation on June 25, 2010.

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  Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and processing, transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids project. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals and fuel and lubricant additives, as well as plastics for industrial uses. The company is also involved in coal and molybdenum mining operations; cash management and debt financing activities; insurance operations; real estate activities; and energy services, and alternative fuels and technology businesses, as well as manages interests in 11 power assets with a total operating capacity of approximately 2,200 megawatts. Chevron Corporation today is a result of a merger with Texaco Inc effective October 9, 2001, and a merger with Unocal Corporation effective August 10, 2005.

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Revenues

  Revenues for these two companies increased at a respectful pace during the years 2009 thru 2011 but as the world economy slowed so did their revenues (See table below). Based on this information revenues for both companies slowed in 2012 and estimates show that revenue will not have recovered in 2014 from the revenue fall off in 2012. 

ExxonMobil Corp
$438.280
$447.670
$482.295
$486.429
$383.221
$310.586

Revenues (Billions)
2014 Est.
2013 Est.
2012
2011
2010
2009

Chevron Corp
$242.170
$237.190
$230.590
$244.371
$198.198
$167.402

Earnings

  Earnings for ExxonMobil Corp during the period from 2009 to 2012 increased at an annual rate of growth of 34.17%. While this is impressive, earnings only increased by 15.20% from 2011 to 2012. Earnings for Chevron Corp during the period from 2009 to 2012 increased at an annual rate of growth of 36.05% but actually declined slightly from 2001 to 2012. Based on estimates for 2013 it doesn't appear that earnings are improving for this year either.

ExxonMobil Corp
$5.46 (9 Months)
$9.70
$8.42
$6.22
$3.98

Earnings
2013
2012
2011
2010
2009

Chevron Corp
$8.52 (9 Months)
$13.32
$13.48
$9.48
$5.24

Dividends, Dividend Growth Rates, and Payout Ratios

  Dividends, however, have continued to climb during this same period but at a much slower rate than the increases in earnings. While earnings for these companies were growing in the range of approximately 34-36%, dividends were only growing in the range of 9-12%. As a result of this differential, the payout ratio for ExxonMobil has declined from 41.71% in 2009 to 22.47% in 2012 and for Chevron from 50.76% in 2009 to 26.35% in 2012. This would normally be great news since it would lead the average investor to believe that since the earnings were improving faster than dividends, future dividend increases would eventually follow as the payout ratio is driven toward zero. But knowing that earnings were not expected to increase in the future as fast as they have in the past, it would be expected that the payout ratio would start to increase once again and put pressure on both of these companies to significantly decrease the rate of dividend growth. This would definitely be bad news.

ExxonMobil Corp
$2.46
$2.18
$1.85
$1.74
$1.66
$1.55
$.98

Dividends
2013 Dividend
2012 Dividend
2011 Dividend
2010 Dividend
2009 Dividend
2008 Dividend
2003 Dividend

Chevron Corp
$3.90
$3.51
$3.09
$2.84
$2.66
$2.53
$1.43

ExxonMobil Corp
12.10%
9.67%
9.64%

Dividend Growth Rate
3 Year
5 Year
10 Year

Chevron Corp
11.03%
9.04%
10.55%

ExxonMobil Corp
22.47%
21.97%
27.97%
41.71%

Payout Ratio
2012
2011
2010
2009

Chevron Corp
26.35%
22.92%
29.95%
50.76%

Dividend Yields

  At the end of 2013 ExxonMobil had a dividend yield of 2.43% which was basically unchanged from 2010. The dividend for Chevron had slightly decreased from 3.42% to 3.12% from 2010 to 2013. Both of these rates are excellent and approximate the threshold of 2.5% I expect from any investment I consider buying into.  In fact a small pullback in the price of Exxon Mobil to $98.40 would increase the yield on the stock to 2.5% and is well within the variability of the stock (see charts below).

ExxonMobil Corp
$101.20 (2.43%)
$70.50 (2.47%)

EOY Stock Price (Div Yield)
2013
2010

Chevron Corp
$124.91 (3.12%)
$83.00 (3.42%)

Stock Price Growth Rates

  I've also calculated the three year stock price growth rate for ExxonMobil to be 12.66% and for Chevron is 14.44%. However this growth rate is calculated based upon the closing price of the stock as of 31 December and the approximate closing price on 31 December 2010. Calculations made on prices that can vary every trading day is a dangerous calculation to base any decisions on but it can be quite useful for comparison purposes.

ExxonMobil Corp
12.66%

Stock Price Growth Rate
3 Year

Chevron Corp
14.44%

The Stock Charts

  Below are the three year weekly charts for both ExxonMobil Corporation and Chevron Corporation. These charts include 5 and 10 week moving averages as well as Bollinger Bands. I've also included the RSI, MACD and ADX for supporting confirmation. As always, I use fundamental analysis to filter or screen companies to determine if they meet my criteria for further analysis or investment. I then use technical analysis to determine the appropriate price and/or time to acquire a stock position. In the end, I hope to own the right stock at the right price and then add to that position over time. 

ExxonMobil Corp - 3Y Weekly Chart

Chevron Corp - 3Y Weekly Chart

Conclusion

  Both of these companies would be excellent candidates for consideration for my accounts based on past performance. I like how they both pay approximately 2.5% in dividends and have a consistent dividend growth rate in excess of the inflation rate. I'm also impressed that their revenues and profits have been growing at a rate faster than the general economy. But all this is in hindsight. Unfortunately going forward, revenue and earnings estimates appear to be declining. This can't be good. I honestly don't believe this will affect either company's ability to increase their dividend annually for some time to come, but it will eventually cause the payout ratio to creep higher and put pressure the company's ability to increase future dividend increases. In addition, any slowing of revenues and earnings will eventually impact the price of the stock. Since I count on a combination of the dividend yield and the increase of the stock price to be at least 8% per year and the dividend is in the area of 2.5%, then I need the stock price to increase by 5.5% per year. That will probably not be possible going forward with revenue and earnings estimates in decline.

  I intend to take a wait and see on these two stocks to see how any future revenues and earnings materialize. I may, however, begin to accumulate odd lots of each of these companies  if the stocks pull back from their present price. I see no hurry to accumulate these stocks at this time and waiting to see if the projected revenue and earnings estimates pan out is probably the  prudent position to take at this time.  They are, however, two solid companies that have been excellent long term investments for well over 100 years and I expect them to be excellent investments again.