ExxonMobil: Shrinking Buybacks Hurt, Boosting Dividend Could Help

August has been unkind to ExxonMobil (XOM). The oil giant’s shares have fallen 7% this month after reporting disappointing earnings on August 1, after dropping 0.8% to $87.25 today. And investors can add another headwind to the company’s tough time meeting forecasts: its shrinking buybacks. Oppenheimer’s Fadel Gheit and Robert Du Bofff explain:

XOM share buybacks totaled >$210B in the last 10 years, or more than the market value of Shell, but declined from $5B in 1Q13, to $4B in 2Q13 and $3B planned in 3Q13, and we anticipate further declines due to declining free cash flow. We expect increased asset sales, but we think XOM funding share buybacks from additional borrowings is highly unlikely. By reducing the share buybacks, which improved per share metrics and valuation over the years, XOM may instead accelerate its annual dividend growth to boost its total shareholder return.

Source: Baron's

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