An 8% dividend yield at Exxon. You are kidding me?
I rarely do stock picking in this column because it is an ephemeral game. Having said that if you tipped pretty much any tech stock over the last 10 years you can profess to be a genius even if you only used a pin to select them. Such are the wonders of a bull market and the firehose of money modern central banks turn on all problems, referring to navigate economic needs by the barometers of their stock markets rather than rely of theory.
Why not, I say, as I am after all as are most of the readers of this column, beneficiaries of such largesse.
While the Fed and its ilk are repressing bond yields and pumping up stocks, I am always on the look out for dividend yield, something not as rare in the UK as the US, because I write an income newsletter in the UK and I need to feed my subscribers with suggestions. What was once easy is now tricky because in the UK so many have been cancelled their dividends, they are now thin on the ground. Also, I fear that many of those companies relieved of the pressure of regular pay-outs will never bring them back or at least not soon. It may even be a turning point where the UK market follows the US into a sparce dividend environment where few companies even consider a dividend pay-out.
Paying dividends can be toxic for a company because the company gets fixated by the negative effect to their stock price of not constantly raising them and especially scared to lowering their dividends in case the stock price should crater on the news. Companies who can’t afford to maintain their pay-outs get into denial about their performance and a death spiral of borrowing money to pay their shareholders dividends.
In Monaco’s famed yacht harbour sits a mighty vessel, paid for by even mightier retail company dividends. Now that company has gone bust you can imagine it might still be afloat in fact be afloat if the cash that went into that floating ‘gin palace’ was instead in retailers bank account. I do not blame the owner, like many would, because he didn’t given up his life to making money to support a load of crummy retail stores made obsolete by the internet. In the game he has played, yachts is what you strive to get and that is what has been won. However it clearly demonstrates how dividends can bleed a company dry and make it fragile.
De La Rue, the printer of UK’s bank notes, is another example of a company sunk by a board pretending it had a company that could afford to maintain great dividend. It puked its cash to shareholders until it was on the edge of collapse a course many once sizable companies have followed into ultimate distress. The list is long of this decent into madness and insolvency.
BUT, we love those dividends, even if ‘the City’ and Wall Street hates them and often punishes companies that pay them, there is nothing better than owning a company you think will rise and yet still get a nice check for sitting there waiting for the good news.
Todays tip is not a UK company by a US giant.
The dividend is 8%+
Its as blue chip as you can get.
The stock is what I class as spicy, as many would say ‘what do you want to buy that company for,’ a nice reaction if you have an contrarian bones in your body. I have many.
It’s a long term capital play on inflation.
It Exxon Mobile.
…and I have bought a fairly nice chunk today, in reaction to my surprise at the scale of its dividend.
I bumped into it, because commodities are on the move, for instance Copper. Copper price action is a real inflation indicator because it’s a core consumable and when the value of money goes down, its prices goes up. All commodities have this property, but Copper is one which is felt to show the clearest signal of economic strength which offers the investor a chance to gauge that and inflation against its price move. They call it Dr Copper because of this reliability. Copper has been on the move straight up.
Look familiar? Its not a tech stock, it’s a red metal but like stocks it is inflated by money printing, or as it is genteel to say, increased liquidity.
Gold is held back at the moment by the lack of consumption in Jewelery, while oil will lag because it’s sensitivity to should term acute developments.
Oil and Gold will follow upwards next year as inflation develops and begins to drive all kinds of economic circuits, but there will be lag for a host of reasons most of which will be overwhelmed in 2021.
…and while I was cruising the markets looking for opportunity I stumbled on to XOM.. what Exxon is paying an 8% dividend??? I actually checked the number in a couple of places to make sure it wasn’t the common sort of data error that plagues financial information on the internet.
To me if you can hold Exxon you get an economic recovery position that is lagging the broader market, a nice inflation hedge and an 8% payout from one of the biggest enterprises on earth.
What is not to love! Even if it cut back its dividend the yield would dwarf that from other income sources.
Here is the chart.
Here is the SP500
Many will say oil has no future, with is either the smartest prediction ever made or the dumbest. I feel confident Asia and the developing nations are not going to crucify themselves on the cross of high cost energy infrastructure and oil will grind on up and with it so will Exxon. The last leg of the W is in and that in itself is a big buy signal to me.