We recently compiled a list of the 10 Best Dividend Aristocrat Stocks To Buy Right Now. In this article, we are going to take a look at where Exxon Mobil Corporation (NYSE:XOM) stands against the other dividend aristocrat stocks.
Investors usually buy stocks with the expectation that their value will increase as the company grows more profitable. However, stocks can offer additional advantages. As businesses succeed and mature, they often choose to distribute a portion of their profits to shareholders as cash dividends. Even more appealing are companies that not only pay dividends but consistently increase them year after year. These stocks have delivered impressive performance over time compared to other asset classes.
According to a report by Thornburg Investment Management, from 1990 to 2023, bond yields, represented by the Bloomberg U.S. Aggregate Bond Index, fell significantly from nearly 9% to 3.41%. Similarly, equity yields, reflected by the dividend payouts on the Dividend Aristocrats Index, declined from just over 3% to 2.42% during the same period. The Dividend Aristocrats Index tracks large-cap, blue-chip US companies within the broader market that have consistently increased their dividends for at least 25 consecutive years. The report further mentioned that dividend-paying stocks can not only offer a source of current income with the potential for growth over time but also help investors bring greater stability to their portfolios in the long run. The report cited Bloomberg’s data and highlighted that dividend aristocrats delivered an 11.63% return to shareholders between 1990 to 2023, compared with a 10.2% return for the broader market.
Excluding the aristocrat factor from dividend stocks highlights their significance in overall market returns. A report by S&P Dow Jones Indices reveals that since 1926, dividends have accounted for roughly 32% of the broader market’s total returns, with the remaining 68% coming from capital appreciation. This demonstrates that both steady dividend income and the potential for capital growth play crucial roles in shaping total return expectations. The report also highlighted the significant impact of compounding when it comes to dividends. Without dividends, the market’s return from January 1, 1930, to the end of July 2023 would have grown to 214%. However, if dividends had been reinvested during the same period, the return would have reached an impressive 7,219%.
Also read: 8 Magnificent Dividend Growth Stocks to Buy Now
The dividend aristocrat index has delivered a 12.5% return since the start of 2024, underperforming the broader market that has returned nearly 27%. Although dividend stocks have lagged in performance this year, companies continue to increase their payouts, reflecting investor preferences steadily. According to a recent report from S&P Dow Jones Indices, 480 dividend increases were recorded in Q3 2024, compared to 448 in Q3 2023, representing a 7.1% year-over-year growth. The total value of these increases for the quarter reached $14.1 billion. Over the past 12 months, dividend increases amounted to $74.7 billion, up from $63.9 billion in the previous year.
Our Methodology:
For this article, we first listed down all dividend aristocrat stocks — the companies with 25+ years of consecutive dividend increases. From that list, we picked 10 stocks with the highest number of hedge fund investors and ranked them in ascending order of hedge funds’ sentiment towards them, as per Insider Monkey’s Q3 2024 database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Aerial view of a major oil rig in the middle of the sea, pumping crude oil.
Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 86
An American energy company, Exxon Mobil Corporation (NYSE:XOM) ranks second on our list of the best dividend aristocrat stocks. The company ranks among the most favored energy stocks for investors, largely due to the benefits it derives from strategic acquisitions. In May, it finalized its purchase of Pioneer Natural Resources, a deal that included the issuance of 545 million ExxonMobil shares, valued at $63 billion at the time, along with the assumption of $5 billion in debt. This merger established ExxonMobil as the leader in high-return unconventional resource development, offering unmatched potential in this area. Since the start of 2024, the stock has surged by nearly 18%.
In the third quarter of 2024, Exxon Mobil Corporation (NYSE:XOM) reported revenue of $90.02 billion, which surpassed analysts’ estimates by $1.66 billion. The company’s exceptional performance reflects its enterprise-wide transformation’s effectiveness in enhancing its structural earnings capacity. In the Upstream segment, the profitability of barrels produced, on a constant price basis, has doubled. Within Product Solutions, the company has optimized its refining operations and boosted sales of high-value products. Additionally, ExxonMobil has realized $11.3 billion in structural cost savings since 2019, showcasing its commitment to operational efficiency across the board.
During Q3, Exxon Mobil Corporation (NYSE:XOM) reported an operating cash flow of $17.6 billion and its free cash flow came in at $11.3 billion. The company returned $9.8 billion to shareholders during the quarter in dividends and share repurchases. On November 1, it announced a 4% hike in its quarterly dividend to $0.99 per share. Through this increase, the company stretched its dividend growth streak to 42 years. The stock has a dividend yield of 3.29%, as recorded on November 25.
Insider Monkey’s database of Q3 2024 showed that 86 hedge funds owned stakes in Exxon Mobil Corporation (NYSE:XOM), compared with 92 a quarter earlier. The collective value of these stakes is nearly $7 billion.
Overall XOM ranks 2nd on our list of the best dividend aristocrat stocks to buy. While we acknowledge the potential for XOM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.