ExxonMobil, like many in the energy sector, has faced some turbulence recently, with oil prices at their lowest in a year, causing a significant downturn. Despite this, the company is gearing up to deliver robust shareholder returns even if oil prices remain lackluster.
Let’s delve into why ExxonMobil is positioned to significantly enhance its profits and cash flow over the coming years, making it an attractive dividend stock by 2025.
### A Roadmap for Future Expansion
On December 11, ExxonMobil updated its strategic plan, extending targets through 2030. Between 2019 and the third quarter of 2024, ExxonMobil achieved structural cost savings of $11 billion, increased its earnings and cash flow, reduced greenhouse gas emissions, and returned $140 billion to shareholders via buybacks and dividends. By 2030, ExxonMobil aims to achieve an additional $7 billion in structural cost savings, totaling $18 billion in savings compared to 2019.
Beyond its traditional oil and gas ventures, ExxonMobil is investing substantially in low-carbon technologies, including carbon capture and storage and hydrogen. The firm sees carbon capture as key to providing lower-emission power solutions for data centers, independent of the main power grid.
By 2030, ExxonMobil projects annual cash flows to grow by $30 billion relative to 2024 ($50 billion since 2019), with earnings climbing by $20 billion compared to 2024 ($35 billion since 2019). These forecasts are grounded on Brent crude oil and Henry Hub natural gas prices of $65 per barrel and $3 per MMBtu, respectively. For context, Brent crude averaged $81.13 per barrel from January through November 2024, while Henry Hub gas averaged $2.12 per MMBtu during that period — 2024 has seen the lowest gas prices since 1998, aside from the anomaly in 2020.
From 2025 to 2030, ExxonMobil expects to generate $165 billion in surplus cash on top of its existing dividend obligations, leaving ample room for considerable dividend hikes and share buybacks. This surplus serves as a buffer if the target prices aren’t met. Even if there’s a downturn, ExxonMobil aims to maintain its dividend growth, perhaps buying back fewer shares.
The company has said that with Brent at $55 per barrel, it anticipates a $110 billion cash surplus, whereas if prices average out to $85, the surplus could soar to around $280 billion. ExxonMobil plans to fund its capital projects and dividends even if Brent drops to $35 through 2027 and $30 by 2030, showcasing the company’s streamlined production portfolio.
The dividend is vital to ExxonMobil’s investment appeal. Despite fluctuations in the oil and gas realm, ExxonMobil has increased its dividend for 42 years straight. This consistency offers investors a reliable source of passive income, with the company currently yielding 3.7%—a notable jump compared to the S&P 500’s 1.2%.
### Steering Clear of Dependence on Debt
ExxonMobil’s corporate roadmap sets clear goals for accountability over the next five years. Crucially, the plan is rooted in generating positive cash flow without leaning on debt, marking a decade-high for its balance sheet health.
As the chart shows, ExxonMobil has minimal net debt for a company of its magnitude. Its financial debt-to-equity and debt-to-capital ratios are impressively low, indicating it doesn’t rely heavily on borrowing to sustain operations. Profits from recent years have helped ExxonMobil reduce its debt burden.
While capital spending has increased, investments are geared toward ventures promising high cash flow. Projects focusing on low-cost supply and superior returns—termed “advantaged assets” by ExxonMobil—include the Permian Basin, Guyana, and an extensive liquefied natural gas (LNG) portfolio. LNG, or natural gas cooled into a liquid form for overseas transport, is a significant component.
ExxonMobil’s recent acquisition of Pioneer Natural Resources expanded its Permian Basin output. Now, more than half of ExxonMobil’s production comes from advantaged assets, a figure expected to rise to 60% by 2030, thereby cutting production costs. This focus allows ExxonMobil to remain cash flow positive even if oil prices dip, limiting leverage and preserving fiscal stability.
### ExxonMobil: A Beacon of Passive Income
Should ExxonMobil realize its growth projections, the company could significantly appreciate compared to its current value. Valued at a price-to-earnings ratio of 13.3, ExxonMobil remains an affordable stock, even amid periods of mediocre oil prices.
Historically, oil and gas firms have been valued below the broader market due to the sector’s volatility and the unpredictable future of fossil fuels in a green economy. Yet, ExxonMobil’s strategic plan suggests the company can achieve meaningful profit and cash flow growth without an oil and gas price hike in the medium term. This excess profit can be channeled into cutting-edge technologies, ensuring ExxonMobil’s dominance, even if global oil and gas demand wanes.
Bringing everything together, ExxonMobil emerges as a comprehensive, resilient oil and gas enterprise to consider investing in by 2025.
