Exxon Mobile (NYSE: XOM)’s Shares Immobile – Lowest Dividend Yield and No Plans For MLP

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By Mark Michaels on August 4, 2014 Consumer Staples, Energy & Solar

Exxon Mobile (NYSE: XOM)’s Shares Immobile – Lowest Dividend Yield and No Plans For MLP

Last week on Thursday, Exxon released its earnings report for the second quarter of the 2014 fiscal year. The gasoline company beat out expectations for its bottom line earnings, and reported that its net income increased 32% year over year. Despite that, the company experienced a decline in production this quarter, a drop of 5.7%.

Exxon’s Dividends

The dividends that Exxon pays to its shareholders is to lowest among other companies in its peer group. According to this chart from Yahoo! Finance, Exxon falls into one of the lowest:

Company	Dividend	Yield
Royal Dutch Shell	$2.92	4.7%
Total	$3.35	4.6%
BP	$2.34	4.4%
ConocoPhillips	$2.76	3.2%
Chevron	$4.28	3.2%
Exxon Mobil	$2.76	2.7%

While it is unrealistic to expect Exxon to match the dividend of the integrated European oil businesses on the chart, especially since the Europeans companies tend to pay a higher dividend yield than their United States competitors, there is no reason why Exxon cannot match the dividend yield of companies in the United States such as Chevron (NYSE: CVX) and ConocoPhillips.

Appreciation of Share Price

The share price appreciation of Exxon over the past five years is 42.4%. This number is about half of that of Chevron, and just under one third of ConocoPhillip’s growth.

exxon_mobil Despite Exxon’s lackluster shareholder returns year over year, there is a silver lining. Exxon’s five year return exceed that of its competitors. It output of oil and gas, which is measure based on its output per share, is growing more rapidly than its competitors. However, this rapid growth could be largely attributed to the company’s over emphasis on buying back shares, which has been $84 billion over the course of five years.
Unfortunately, Exxon’s uneven allocation of funds to stock buybacks has not only taken a toll on a competitive dividend yield, but has also prevented the company from achieving the appreciation in share price that such a huge share buyback should have caused.

No Chance Of An MLP

During the investor call with Exxon this past Thursday, analysts expressed their impatience and discontent with the company. Analysts questioned the gasoline company about what it would do to increase shareholder returns, and Exxon all but completely dismissed them.

The question of forming an MLP came up during the investors call. One analyst from Howard Weil noted that Exxon has an abundance of assets that would fit very well into an MLP and boost the underlying value that is not shown in the stock.

One of Exxon’s European partner companies, Royal Dutch Shell (NYSE: RDS.A), announced plans to form an MLP. As well as Marathon Oil (NYSE: MRO) and Hess (NYSE: HES). An MLP will enable the company to raise shareholder value and also creating tax advantaged distributions and an channel that is already set up for dropping down assets in the future.

However David Rosenthal, the vice president of Investors Relations of Exxon, responded negatively to the MLP idea. Rosenthal pointed to the company’s midstream portfolio and its strategic assets. He stated that the company is already monetizing those assets, whether or not the stock price reflects that monetization. The company claims that it is maximizing the value in the integration of its full value chain.

Rosenthal insists that the company has already extensively looked at its assets and weighed the pros and cons of each opportunity, but maintain that integration yields the most benfits.

However, this response does not make sense if the company had the benefit of itself and its shareholders in mind. The multitude of asset sales that Exxon speaks of would greatly benefit shareholders if Exxon reflected those sales in its dividend yield.

Additionally, forming an MLP would not hurt Exxon in anyway, in fact it would do jus the opposite. By being the general partner of an MLP, Exxon would manage the MLP and also collect the tax advantaged distributions the limited partner, while enabling the company to drop down additional assets.

However, it seems that Exxon is stuck on maintaining its size – simply for the reason of staying big. This is most likely due to the fact that the executives of Exxon are paid based on the size of of the company’s revenues.

Overall, Exxon Mobile doesn’t seem concerned with the lackluster returns to shareholders. It refuses to instigate an appealing dividend or form an MLP to significantly boost the price of its shares. Since Exxon Mobile has insisted on maintaining its ways for years now, it doesn’t seem that anything will change soon.

Meanwhile, Exxon has received a general Hold rating from analysts for long term shareholders.