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Proprietary Data Insights Financial Pros’ Top +5% Dividend Growth Stock Searches in the Last Month
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Top 5 Dividend Growth Stocks Pro Picks
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Although Treasury bonds pay more than they have in years, nothing beats the safety of a dividend growth stock. These companies combine the best of both worlds: regular income payments that grow over time. Studies show that dividend growth stock portfolios can offer better risk-adjusted returns than the broader market. So, we decided to see which ones were the favorites according to money managers. At the top of the list came Exxon Mobil (XOM). We’ve been a fan of the company, lauding its diversified business and fortress balance sheet. Shares are up 21% year-to-date, almost 3x more than the S&P 500. Yet with the Fed poised to keep rates higher for longer, does that put the brakes on this stock’s epic run? Exxon Mobil’s Business Exxon Mobil, a global energy powerhouse, has been at the forefront of the oil and gas industry for over a century. With a rich history dating back to John D. Rockefeller’s Standard Oil, Exxon Mobil has consistently demonstrated its ability to adapt, innovate, and thrive in an ever-changing landscape. In 2023, the company produced 1.68M barrels of oil and 345K of natural gas. The company’s business breaks down into four key segments:
Like all energy companies, Exxon faces immense pressure to go green. Management has targeted net zero Scope 1 and 2 emissions from their operated assets by 2050. To make it happen, they’re beefing up their low-carbon solutions business. Like carbon capture and storage, hydrogen, and biofuels. They’re even jumping into the lithium game to supply up to a million EVs per year. In 2023, Exxon Mobil closed a huge deal to acquire Denbury Inc. and agreed to scoop up Pioneer Natural Resources. These moves are about accelerating growth in the Permian Basin. Plus, the company has multiple large high-value projects set to come online next year.
Source: Exxon Q4 2023 Slide Deck Financials
Source: Stock Analysis Upstream revenues plunged $16.7 billion in 2023 as oil prices slid from record highs, something Exxon has little control over. However, as crude prices climb in 2023, revenues should rebound. Overall, Exxon’s done a fabulous job improving its profitability, keeping gross margins around 25% and operating margins over 15%. The free cash flow margin is a healthy 9.7% despite a record $22.0 billion Capex in 2023, which is expected to grow to $23-25 billion in 2024. Nonetheless, Exxon pays a healthy 3.14% dividend yield that has grown consistently for 25 years, with a 5-year growth rate of 2.55%. Despite its size, Exxon only carries $47.7 billion in long-term debt with $31.5 Valuation
Source: Seeking Alpha Our comparison of dividend growth stocks brings in a mix of industries. Companies like telecom’s Verizon (VZ) and tobacco’s Altria (MO) trade at lower P/E and price-to-cash multiples, while the utility company Nextera Energy (NEE) and tech company IBM (IBM) both trade at higher multiples. So what drives this difference? Growth
Source: Seeking Alpha One area is growth. Exxon’s revenues and earnings swing wildly based on the price of oil. We don’t see that kind of movement in revenues or earnings for any of the other companies. Only Nextera stands out for huge revenue growth. However, it’s a fairly unique utility company compared to others. Profitability
Source: Seeking Alpha What’s interesting is to see how each company’s profitability lands. All have better EBIT margins than Exxon. Yet, Exon’s net income margin edges out Verizon and is just below IBM’s. It’s also one of the lowest free-cash-flow margins. But again, it can invest in regular growth while others may not. Our Opinion 10/10 We haven’t changed our opinion of Exxon Mobil. It’s a fabulous company that can scoop up competitors when the opportunity arises. Plus, a forecasted oil supply shortage should boost profitability in the near term. |
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