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Dividend Growth Supports Exxon Mobil (XOM) as Oil Prices Stagnate

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Despite a softer Q2 due to lower oil prices, Exxon Mobil’s developments and strong financial position signal accelerating dividend growth, making it a compelling buy for income and value investors.

Dividend Growth Supports Exxon Mobil (XOM) as Oil Prices Stagnate

Exxon Mobil (XOM) is gearing up to report its Q2 earnings in two weeks, which may come in a bit light due to softer oil and gas prices. However, that shouldn’t dampen investor optimism. Recent developments have been encouraging, and the company remains well-positioned to continue growing its dividend.

Elevate Your Investing Strategy:

Despite facing a more challenging energy market, Exxon’s solid fundamentals and strategic decision-making make it an attractive option for investors seeking income and potential upside from a rebound in the energy sector. As a result, I maintain a Bullish outlook on the stock.

Q2 Earnings: A Tough Quarter, But Not a Dealbreaker

Exxon Mobil’s Q2 earnings are expected to come under pressure, with analysts projecting a 14% drop in revenue and a 28% decline in earnings per share year-over-year, mainly due to falling energy prices. Brent crude averaged $66.71 per barrel during the quarter, down 11% from Q1, while natural gas prices slipped 9%.

Exxon previously warned that lower liquids prices could reduce its upstream earnings by $800 million to $1.2 billion, with falling natural gas prices potentially cutting an additional $300 million to $700 million, adding up to a midpoint impact of around $1.5 billion. Timing effects from unsettled derivatives could swing earnings by another $300 million in either direction, though refining margins may provide a modest lift, contributing $100 million to $500 million.

Importantly, these challenges are largely market-driven and don’t reflect any fundamental weakness in Exxon’s operations. The entire energy sector has faced turbulence lately, with uncertain global demand and persistent oversupply keeping prices subdued. Exxon isn’t alone—companies like Shell (SHEL) have issued similar warnings.

What sets Exxon apart, however, is its diversified portfolio and disciplined cost structure. The company has achieved $12.1 billion in structural cost savings since 2019, providing a buffer against cyclical downturns. Viewed through that lens, this earnings softness looks more like a temporary dip than a sign of deeper issues.

Bright Spots: Cyprus Discoveries and Other Moves

According to TipRanks data, Exxon Mobil’s total throughput is marginally lower compared to previous years. In a bid to sustain its market position, Exxon Mobil has several plans up its sleeve.

Despite the current softness in the energy market, Exxon Mobil has been executing a series of innovative, strategic moves. In Cyprus, the company made a significant natural gas discovery at the Glaucus-2 well, enhancing its offshore exploration prospects and strengthening its foothold in the energy-rich Eastern Mediterranean. In parallel, Exxon is reportedly negotiating the sale of its Esso-branded gas stations in Singapore—a move aimed at streamlining operations and sharpening its focus on higher-margin upstream and chemical segments.

Last year’s acquisition of Pioneer Natural Resources is already paying dividends, adding 574,000 barrels per day to production and contributing to a 15% increase in Q2 output. On the sustainability front, Exxon continues to lead in carbon capture and storage, having secured contracts to transport and store 6.7 million metric tons of CO2 per year—more than any of its peers.

These developments suggest Exxon is actively reshaping itself into a leaner, more diversified, and more resilient business, better equipped to navigate the volatility of global energy markets while positioning itself for long-term growth.

Dividend Growth Provides a Reliable Cash Machine for XOM

Exxon’s dividend remains a cornerstone for income-focused investors, and there’s a good chance its growth will accelerate. The company has raised its dividend for 42 consecutive years, a rare achievement matched by fewer than 4% of S&P 500 companies.

Since the pandemic, those increases have gained momentum: from $0.87 per share in 2020 to $0.88 in 2021, $0.91 in 2022, $0.95 in 2023, and $0.99 in 2024—a 4% uptick last year. While these increases have been modest, the trend is positive. With the current payout ratio at just 60% of expected EPS for 2025 and oil prices likely to recover, a five- to six-cent hike this year seems well within reach.

Exxon’s improved financial position also supports further dividend growth. The company has slashed its net debt from $68.6 billion during the pandemic to just $20.5 billion today, bringing its net-debt-to-capital ratio down to a conservative 7%.

This stronger balance sheet gives Exxon the flexibility to raise dividends without overextending itself. Additionally, the company’s ongoing $20 billion annual share repurchase program through 2026 reflects management’s confidence in its long-term cash flow and financial strength.

Valuation: XOM Is A Bargain

From a valuation standpoint, Exxon Mobil looks reasonably priced at 17x this year’s expected earnings and 15x next year’s. For a company of its scale and quality, that’s a compelling multiple—especially with analysts projecting 15% EPS growth in 2026. That growth outlook is underpinned by expectations of rising oil prices as global demand stabilizes and supply tightens, with Brent crude potentially rebounding toward $80 per barrel, which would significantly lift upstream earnings.

Exxon’s diversified operations—from its strong Permian Basin presence to its chemical and refining businesses—provide multiple growth levers. Combined with its modest but consistent dividend hikes, a rock-solid balance sheet, and a proven operating track record, XOM offers an attractive value proposition for investors looking for both income and long-term upside.

Is XOM a Buy, Sell, or Hold?

Currently, analysts are leaning bullish on XOM stock. The stock carries a Moderate Buy consensus rating, based on ten Buy and five Hold ratings assigned over the past three months. Today, XOM’s average stock price target of $124.80 implies roughly 9.5% upside potential over the next twelve months.

See more XOM analyst ratings

Exxon Mobil Stands Out as a Stock for the Long Haul

Exxon Mobil’s Q2 may end up presenting a temporary setback when figures are officially announced at the start of August. However, the long-term outlook remains strong. From significant natural gas discoveries in Cyprus to strategic divestitures like its Esso gas stations in Singapore, Exxon is streamlining operations and reinforcing its core strengths.

With 42 consecutive years of dividend increases and a much-improved balance sheet, dividend growth is likely to pick up pace, while investors shouldn’t discount future geopolitical flare-ups that would likely boost oil and gas prices. Therefore, XOM is also a stock that offers timely exposure to a potential oil price shock in the Middle East, given recent news developments from the Middle East.

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