Added More Exxon Mobil (XOM) To My Portfolio

I’ve owned Exxon Mobil (XOM) for the past 7 years, and including dividends, I’ve had an annual return of slightly over 5% APY.  While it’s not knocking it out of the park, it’s not bad for a Dow component, and especially not bad in this economic environment.  Exxon, as with other oil companies have been beaten up in the past 2 years, especially in the past 3 months with the BP disaster in the Gulf.  For the past three months, Exxon’s stock has declined  over 16%, and I think it has been oversold.  I’ve been looking for a place to put some new money, and have been looking at FDIC secured investments, but I am frustrated with their poor returns.

Exxon Mobil is one of the stocks I like to buy-n-hold.  My reasons:

• An annual dividend increase for past 20+ years.  No decrease has occurred during this time.  This increases the ROI on the initial shares purchased.
• Frequent stock buy backs.  This makes less shares available, which in turn drives up the share price. Over the past five years, Exxon repurchased $135 billion worth of stock, reducing outstanding shares by 23%.
• Is a cash flow fiend.  The trailing 12 months generated over $32 Billion in cash flow.  Though decreases in oil prices will decrease future cash flow.
• A method to hedge inflation.  The many government initiatives in the long term will surely increase the cost to produce resources like oil.

The last item I should mention, was a great way to offset the increases we saw in gas prices at the pump.  The stock purchase basically negated (with additional profit) the increases we paid filling up our cars.  With increasing consumer prices hedging with stocks is a great way to help ease the pain.

As I mentioned before, FDIC secured investments are now generating poor returns and some of the lowest in history.  The highest 5 year CD rate nationally is 3.29% APY, while XOM’s dividend is 3.11%.  Ten-year treasuries are earning an even lower 2.98% return.  It’s a no brainier to buy this stock over a CD because of:

• The stock’s current and 8.3 forward P/E
• Cash reserves of over $9 Billion, ensuring the dividend can be paid.
• Their history of increasing the dividend overtime.
• The steady dividend, and very good chance of upside potential.

While in the short term the stock could go lower, my time horizon is 10+ years.  The stock also has gotten beaten up because of the announced XTO Energy (XTO) acquisition, which will give them increased exposure into natural gas.  This is also another win-win as natural gas prices are very depressed at the moment, and could help aid increase the stock valuation.  In my opinion Exxon Mobil is a much safer value play on oil, than say BP (BP).  There are many unknowns with BP which makes it much more riskier to invest in: the total cost of cleanup, the total cost of payouts, and what additional government intervention (ahem shakedown) will occur with BP.

This stock is owned in my taxable growth portfolio.  While I am worried about the possible increases in tax dividends, since Bush’s tax cuts will end January 1st 2011, long-term I still think it’s a great stock to own.

Full Disclosure: Long XOM