Thursday, January 11, 2018

First Dividend Stock for 2018 XOM

Good New Year everyone.  I can report to you that I bought my first Dividend Stock for 2018 and it is Exxon, symbol XOM.








  • Low Debt to Equity Ratio (D/E) of a dividend stock is downside risk protection for the income investor 
  • Emerging from EPS weakness when dividends were maintained or even increased is another measure of strength
  • Long term dividend growth is important in a mature stock 
  • Adjusting your strategy to the new normal can help participate in gains but good fundamentals limit risk


I am changing my approach a bit this year.  I built seven pretty successful portfolios using my Dividend Machine Criteria; my 2011 portfolio is up over 130% or 18% per year.   I still want to make sure I am buying solid stocks but I am not going to restrict my buys quite as much.  I am going to deviate from my strategy to adapt to the new normal.

We need to pick stocks for income but limit our risk by using solid fundamental analysis yet this year I want to look at participating in gains by adding to those stocks I trust to deliver income when the new normal breaks down and becomes the same old boom and bust cycle of stocks.

I think we need to be very facile in our investing for 2018.  Our job as income investors is much easier than the investor who needs to create the wealth off of which they live.  We just need to invest our savings in instruments that deliver income and make sure those investments are safe.

The value of these income investments can vary but as long as they continue to deliver income when times are not so good and increase our income when times are good, we can stick with these stocks.

When I look at a stocks, I  must have income in the form of dividends and I really like covered calls where possible.

RISK CONTROL WITH D/E RATIO AND EPS


Debt to equity ratio (D/E) ratio is one of the most available and easiest measures of a company's fundamentals. I will not compromise on this metric.

Readers know I used earnings per share being great than dividend pay out as another measure of safety.  This year I am not going to be so severe a critic of EPS.  If the earnings per share of a stock only barely cover the dividend I won't immediately eliminate it.

For instance in the case of XOM, my first Dividend stock of 2018, this stock continued to pay dividends during some difficult times.   When oil prices collapsed, earnings were not covering the dividend.  Because of the strength of the balance sheet, XOM was able to continue to pay us dividends.  Now earnings are turning around and are equal to dividends paid out.

We cannot be sure that oil prices will stay strong.  However, I am hoping that during the bad times, Exxon used it talent to develop technologies that will improve performance.  They have diversified to include multiple energy sources.  I believe they are a solid company and will maintain and improve the ratio of dividends paid/earnings.

Exxon XOM DIVIDEND FUNDAMENTALS


I have summarized the fundamentals I track on my dividend stocks.  I bought XOM on January 3 at $86.78 right about where it is today (1/10/2018.)  The table below summarizes the metrics I track on my dividend stocks and provides the detail for XOM.

         
  Exxon Mobil Corporation   
  XOM 1/3/2018 $86.78  
         
  D/E Ratio 0.14    
  E.P.S   $3.07  
  Dividend   $0.31  
         
  Dividend 3yr Growth 3.86%  
         


XOM would not have been in my previous portfolios because their revenue growth is negative.  This is mostly due to the price of oil.  However, times have changed and XOM has a better diversified revenue base and oil prices have improved.  In fact in their most recent quarter (9/30/2017) revenue grew by 5.9%.

UPSIDE POTENTIAL IS DIVIDEND GROWTH and STOCK PRICE


Based on XOM's current dividend stock fundaments, I think the dividend will be safe when the next bust cycle confronts us.  Stock price may go down if markets suffer a major disruption but XOM will stay in business and it is highly likely they will continue to pay their dividend.

Based on improving management fundamentals, and the sheer size of XOM operations, they have the potential for stock price gains.  With a price/earnings (P/E) ratio of only 22 as compared with Chevron, symbol CVX, of 30, Exxon is going into my portfolio.


M* MoneyMadam

Disclosure:  Long XOM

2011 Portfolio up over 130% or 18.% per year