Exxon Mobil (XOM) Could Be a Great Choice

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Exxon Mobil (XOM) is headquartered in Spring, and is in the Oils-Energy sector. The stock has seen a price change of 26.84% since the start of the year. Currently paying a dividend of $1.03 per share, the company has a dividend yield of 2.7%. In comparison, the Oil and Gas - Integrated - International industry's yield is 1.4%, while the S&P 500's yield is 1.38%.

Looking at dividend growth, the company's current annualized dividend of $4.12 is up 3% from last year. Over the last 5 years, Exxon Mobil has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.11%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Exxon's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, XOM expects solid earnings growth. The Zacks Consensus Estimate for 2026 is $9.33 per share, representing a year-over-year earnings growth rate of 33.48%.

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that XOM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

Source Zacks-com