Once one of the most valuable companies in the world, energy giant Exxon Mobil (NYSE:XOM) has experienced a gradual decline from greatness in recent years, with its valuation now dipping well below levels many thought was possible just a few years ago.
This stock price decline has resulted in a dividend yield that now quite frankly looks unsustainable at around 11% at the time of writing, making even income-oriented investors wonder if now is a great time to buy this large-cap name.
Any time a company’s dividend yield crosses the double-digit level, red flags are sent to investors, as this type of yield is generally not considered to be realistic in the context of long-dated government bonds now trading below a 1% yield. The fact that Exxon’s stock has performed worse than 4/5 of the overall market is concerning.
Questions around Exxon’s ability to survive the sharp decrease we’ve seen in investor interest in the energy space remain important to consider for long-term investors. As the world continues to shift away from fossil fuels toward renewable energy and electrification, Exxon’s list of catalysts is shrinking and headwinds are picking up.
The company’s announced double-digit carbon emissions increase projections to 2025 has turned many Environmental, Social, and Governance (ESG) oriented investors away from this stock, and I see this trend as increasingly sticky.
Investors fixated on yield have better choices elsewhere, particularly as I expect a right-sizing of Exxon’s dividend to be announced sometime in the near future.
Invest wisely, my friends.
