I fully expect Exxonmobil to fail and either get sold or go out of business. The writing is on the wall. Moving jobs to cheap locations with lackluster skills will only speed up the massive failure of a once great American company. Can out while you can and don’t look back!
22 replies (most recent on top)
THE TRUTH ABOUT DIVIDENDS
Lots of comments on this topic. Here's the truth from an investor's perspective. Dividends can be both good and bad, depending upon the objectives of a company, why investors buy their stock, and the prevailing economic environment.
Investors looking for growth stocks normally prefer a company to reinvest all of their free cash flow back into the business to generate additional profits/growth. These folks have a long term horizon and do not expect short term profits or payouts. They will eventually reap their returns from selling the stock after significant additional value is reflected in the stock price over the moderate to long term.
Investors looking for income prefer either fixed income investments like bonds, money markets, etc. OR stocks that will hold their value and perhaps grow modestly, but want/need a dividend payment to either meet or supplement their living expenses.
Historically, XOM has been viewed as a good dividend stock, not necessarily a great growth stock. Investors were pleased with a 3-4% dividend yield and slow but steady increase in stock price. These investors normally tolerate fluctuations in stock price as long as their income remains the same. The calculated yield at a given point in time is of little importance.
In the current economic environment, XOM has positioned itself as a counter-cyclical dividend stock, meaning they have maintained the dividend while similar O&G stocks have cut their dividend. The dividend investors remain happy and not overly concerned with the stock price being low for a while since they meet their annual cash flow requirements not by selling the stock at a loss, but rather by receiving the dividend payment.
So, is this good or bad? There is no absolute right answer. Up to this point, XOM claims to highly value their dividend investors and do not want them selling XOM and buying something else. The growth investors have long since sold their positions in XOM if they could afford to.
What should XOM do? IF they need to retain cash flow to grow the business or simply cover their costs of doing business, they should cut the dividend and increase cash flow and retained earnings. But, does XOM need the additional retained cash flow to maintain operations and remain competitive?
The near-term answer is no. XOM was heavily overinvesting in an environment of greatly reduced demand and low prices. Even if management didn't like to accept the new reality, they have been forced to scale back capex to a more appropriate level. So what about expenses? Again the answer as it refers to a dividend cut is no. XOM quickly needs to adjust their cost structure, particularly as it relates to employee count and salaries, to match the reduced capex levels and in line with the current economic environment.
So, XOM needs to improve cash flow primarily through reduced capex and overhead costs. These changes are absolutely essential, irrespective of the dividend argument. Sadly, these steps mean fewer employees are needed, in addition to the general view that XOM was always overstaffed, some believe leading to the detriment of promoting, or at least tolerating, waste and inefficiency.
What about the argument that it is unwise, and perhaps unfair to employees, to borrow money to pay the dividend? The cost of borrowing money is extremely cheap now. If XOM were paying high costs to service debt, all borrowing should be closely scrutinized, but that is not the case now. So even if you attribute debt solely to the dividend, the minor additional cost of debt is not a serious enough problem to justify taking the axe to the dividends.
Bottom line, XOM needs to reduce costs that cannot be justified in this economic environment, and that means lower capex levels and fewer expenses, including fewer employees, static or reduced salaries and possibly even benefits reductions. This has to be done, period, regardless of other considerations.
Unless these measures fail to provide adequate cash flow to operate in this environment, the dividend should be paid. You simply should not save cash flow by abandoning the type of investment the company has positioned itself as over decades, which is a dividend stock with moderate growth outlook. It would be like breaking the piggy back not for an emergency, but instead to splurge on items that are not a priority. Only if these cost cutting measures cannot support a scaled back XOM should a dividend cut be considered.
Understandably, not the answer employees and many on these boards want, but it is correct to argue that the dividend should be maintained until and unless all other cost cutting initiatives are insufficient, and XOM is not there yet. We must see how the company is positioned a year or so from now, then take another look at this topic.
Hope this helps, but if your mind is made up either way, I don't know of any explanation that will satisfy you.
Hey guys don't forget. Other O&G companies have cut their dividends (like Shell and BP) and their stock has not done as bad as ours.
But we know better. After all we are Exxon Mobil!
@1mxo+17NIwYhc Oh no! Looks like we hit a nerve. Facts can hurt.
If the old boy has really been in the oil patch for decades, chances are that he is worth a few million and laughing at all of us.
Most individual stock holders, including many employees, are indeed willing to hang onto XOM stock for the long term as long as the dividend is paid. They count on continuing to get between 3 and 4 dollars per share, and they are willing to wait and hope that the stock goes back up to 70 or 80. With a long term outlook, who cares what the stock price is today.
But, take that dividend away, and I agree with the post below, shareholders are going to sell. That drives down the stock price and further exposes bad management decisions.
The dividend yield means nothing unless you are buying in now, and if you are, there are much better oil stocks out there than ExxonMobil.
You are a mo–n. I hope you get let go in this next round of layoffs.
@1mri+17NIwYh
Sorry grasshopper, but I know more about financing and the O&G gas industry than you will ever achieve. Yes, the wise media says we are borrowing to pay dividends, so you believe them. If it's on CNN or in the WSJ, we must believe and follow! Not. Drop your subscription, it's not helping you.
Sounds like you might have a useless MBA or some other nonsense that sounds good but really brings nothing to the table. NPV, DCF-ROR, oh my, you smart! High school economics.
Decades in the oil patch taught me what I need to know, not listening to whiny little wanna-bees that can't stomach the truth. What does paying dividends do for the company? It keep investors hanging on so that the company can pay you a salary, albeit a waste in your case. Cut them and see what happens. You think things are bad now, let the stock drop to $20 and see many layoffs happen.
@1nnh+17NIwYhc I would not be surprised if you are from our finance function. I have heard them say the same thing over and over. It’s almost sickening to hear people say something they don’t even believe. Only because that is the dogma they are expected to repeat. Everyone knows we are borrowing money to pay dividends. We hate to admit it because it is a stupid thing to do.
We can talk about business in technical terms like net present value, discounted cash flow, opportunity sets, income statements, and all the jargon used in business school. But at the end of the day, the way business works is you invest money to produce goods and services. If you do well you take in more than you pay out. You use the earnings or positive cash flow to re-invest in good opportunities which again return more than you pay out, and to pay to shareholders (dividends).
But shareholders are not made richer by the company borrowing billions to pay dividends. The company has to pay it back and that is reflected through a lower stock price. There is a big difference between earning $15 billion through good business results and paying it out to shareholders, versus borrowing $15 billion and paying it to shareholders. You don’t need an MBA to understand that. It’s called common sense.
Your logic leads to ridiculous results. By your logic, if you use your credit card to borrow cash to gamble in Vegas, then you can convince yourself that you are really borrowing the cash to pay your groceries, because money is fungible. No problem. No need to cut down on the gambling!
A smart person would prioritize their spending to eliminate unnecessary debt instead. But don’t take my word for it. Just look at the actions of millions of investors who have marked down XOM stock. It’s clear they don’t agree with you. As of yesterday, the dividend yield is an astounding 10.6%! This is not a vote of confidence by investors. This is the marketplace telling us that borrowing to pay dividends is stupid, and is not sustainable. They see right through it.
You may think you are smarter than the market. But basic business sense, as well as the collective input of millions of investors say you are wrong. EM is borrowing to pay dividends. The market clearly believes it is bad business, and it is destroying the long term value of the company for shareholders.
LIFE LESSON HERE.....
Shareholders own the company, employees just work there, although they may too be shareholders.
Employees don’t get to decide how the company uses money. Shareholders decide that, and management does as the shareholders want or they will be replaced. Working at EM doesn’t somehow give you magical power to decide whether or not to lay-off workers, cut the dividend, or anything else.
If you don’t like how the company is run, either convince shareholders otherwise, do as management says, or leave. Simple as that.
Speaking of dumb, that would be you. Money is fungible. To help you understand big words, that means money can be used interchangeably for a variety of needs. We don't have oil wells that just produce dividend money and other oil wells that just produce employee salary money. They just produce oil which sells for money, and management decides how to use that money.
You and others here like to blame everything on dividend payments, and you say we borrow money to pay it. No, we don't. We borrow money to use for a variety of needs, including opex, employee salaries, capex, dividend payments, etc. Even for the coffee you drink at work.
I say we borrow the money to pay employee salaries, so if we need to save money, the only solution is to lay off employees. Someone else says we borrow money to use as capex, so the only solution is to have fewer projects. Someone else says we borrow money for lease payments on office space, so the only solution is to close all offices.
See how that works? Too complicated for you? It's all equally stupid.
So quit making ignorant statements that show just how very little you understand about how businesses run. Money is money. Management decides how to use it. There is plenty of money to pay the dividends, simply by cutting back elsewhere. Your salary would be a great start.
ExxonMobil will not fail completely nor go bankrupt. Oil will go back to $50-$65. Corona will be gone in a year. ExxonMobil would have laid off 15000 employees and saved payroll. I am sure with all data showing they are worse than Chevron and almost all competitors, some shakeup will take place. Fossil fuels will be needed for plastics, jet fuel, diesel. Fossil cannot be replaced by electricity. My thinking - look for jobs and quit but do not dump the stock at $32, wait it will go to $50-$75 after 3-5 years.
Chemical research eliminated two levels of management in 2019, I wonder whether the same will happen to the rest of the company.
The dinausor is safely dying under control. Of course it is displayed within a colorful PowerPoint.
Having moved to a company that is actually well run, is expanding because they were conservative at the right times and aggressive at the right times, I can tell you that your work and competency is actually valued at small, efficient new firms. The benefits are amazing: fully paid medical, dental, and life insurance + 6% match still. At ExxonMobil, the only thing that matters was perception. The new company is the business that ExxonMobil always meant it to be, and not once have I had to perform meaningless loss prevention system c-ap that's designed to blame the employee for everything. Just one month in, and I couldn't be offered enough money to work for ExxonMobil again. ExxonMobil wonders why its competitors are eating its lunch. We capitalize on your mistakes, your inefficiency, and we're acquiring assets that ExxonMobil is selling on the sly. Keep the dividends. Analysts have it wrong. ExxonMobil is the next Ford.
Assuming average salary of exxonmobil employee is $200k (conservative as company pay is worldwide) and we are looking at 2019 headcount (75k employees globally). That would amount to 15 billion annual. Seeing as our quarterly dividend payment is 87 cents per share on 4.3 million shares, that amounts to 3.7 billion a quarter (roughly 15 billion annual) to just cover that.
Headcount doesn't even cover all the other costs of a commodity business nor does it pay the bills on the manufacturing sites, so yes, we are taking out loans to pay the dividend you dumb f—. You must be a manager / supervisor for exxon because it's that type of stupidity that got us to where we are.
@piu+17NIwYhc Then fire the managers. The majority of them don't know how to lead or do technical work, and there are far too many layers of middle management doing powerpoint, fawning around their managers and wasting time on needless meetings. You can easily fire 50% of managers with no loss of productivity.
tya+17NIwYhc
Shows how bad our leaders are. We knew
this but spend an absurd amount of money buying land and building a ridiculous campus? How many poor decisions can they possibly make?
XOM is not borrowing to pay the dividend. It is borrowing to pay employees who are no longer needed. Better to give money away to shareholders and stop giving it away to employees who are no longer needed. Stop Wasting corporate capital on employees who are no longer needed. FIRE THEM NOW. Employees are expense
Just about every Corporation in America is sending jobs overseas. Exxon has been behind the rest of America doing this. Almost all O&G majors have been doing this to a greater degree than we have for years. The tech sector has been doing it for decades.
Way to be sheltered and haven't a clue what is going on outside of exxonmobil.
The mo–n wouldn’t cut the dividend.
I kind of doubt it, but who knows. Getting bought seems the most likely of your scenarios in the next 10 years, if that could somehow pass regulatory muster.
My experience is only in Upstream. Its a company that seemingly has been running on inertia post-Mobil. That's not to be discounted, it's a lot of inertia. Inertia is what funds megaprojects, and only a few folks can do that. XOM is staggeringly inefficient. It's way overstaffed in positions that don't seem to be helpful at all (Hi Planning!). Competent lower level leaders usually only stay for 18 months on a project, so you never have informed competent lower level leaders. But again, so much inertia. As far as I can tell, Upstream earnings is very dependent on favorable terms in large overseas projects. Qatar for a long time. Hopefully Guyana for a long time. Onshore US is thus far just a money sink where the plan was to grow volumes astronomically without considering cost or the macro effects of everyone in the space also growing production astronomically. It should eventually be decent, but a mass production factory is not a great place to be the least efficient operator.
At lower pricing all the inefficiencies start to show their heads, at mid-higher pricing, they just get swamped under the avalanche of revenue. If oil stays at $40ish Brent, it's probably gonna get kind of hairy. Firing people is a terrible deal, but jeez, needs to happen.
None of that deals with the head-scratching practice of borrowing $10-15B a year to give it away via the dividend at a time when you don't have money to invest in projects. That's a pretty big guaranteed negative return. Maybe I don't understand economics.
That would be mind blowing if this happens.