Why We Wanted More in the Dividend Hike from Exxon Mobil

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Earlier today we had been predicting that a dividend hike was going to be announced by both Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) very soon. It turns out the dividend announcement for a high yield dividend was much sooner rather than later. The company’s Board of Directors announced on Wednesday ahead of its earnings that it had declared a cash dividend of $0.63 per share of common Stock per quarter. This was somewhat as we expected, but the delivery here was made with a resounding thud and there is a reason that we and Wall Street seem a bit disappointed here.

The title of the headline simply read, “Exxon Mobil Corporation Declares Second Quarter Dividend.” With this being a 10.5% dividend hike, the press release could have said “Exxon Mobile Delivers Double Digit Dividend Hike to Shareholder” or even “Exxon Mobil Delivers 31st Annual Dividend Hike” instead.

We are not trying to ask companies to do shareholder grandstanding. BUt the delivery here was about as exciting and about as noticed as a sunrise each morning. The release simply said, “This second quarter dividend compares with 57 cents per share paid in the first quarter of 2013. Through its dividends, the corporation has shared its success with its shareholders for more than 100 years and has increased its annual dividend payment to shareholders for 31 consecutive years.”

On thing that was not really addressed was the share buybacks. Another issue is that we were hoping for a dividend hike to about $0.65 per share based upon this being so far behind rival Chevron Corp. (NYSE: CVX) already

Exxon’s share price strength throughout this trading day seems more tied to low oil inventory shortages rather than being tied to this dividend hike. Earnings are due tomorrow.

There is always a difference between the payout ratios from non-GAAP and GAAP earnings per share. The problem is that predicting GAAP earnings has too many moving bells and whistles so most analysts focus on non-GAAP. This $2.52 higher rate for the dividend now compares to a Thomson Reuters estimates of $8.02 in earnings per share (non-GAAP) for all of 2013. If you divide this then it generates only 31.4% of is expected earnings to be paid out. Given Exxon Mobil’s announcement about full production replacement and then some with high ambitions to 2017 this just feels unambitious.

We cannot be truly disappointed with Exxon over this dividend going to $0.63 rather than the $0.65 per share we were hoping for. At the same time, there is just no reward for delivering mediocrity to shareholders. This payout comes to $2.52 per year and rather than yielding just under 2.6% the new yield based upon a 0.5% share price gain to $89.65 generates a new yield of 2.81%.

Rival oil giant and dividend payer Chevron Corp. (NYSE: CVX) already yields over 3% and we expect a dividend hike from it as well with earnings due later this week. To prove how unenthusiastic Wall Street is about the Exxon hike that was announced, Chevron shares are currently up by over 0.7% at $118.37. Chevron is up more on no news than Exxon is even after it raised the dividend.