Dividends and Exxon pledges to resume share buybacks amid jump in profits

In the world of investing, if you invest in a commodity based company and the price of the commodity goes up, the revenues and profits go up, it is really that simple. The trick is determining when the price of the commodity will go up. In the case of oil companies, the price of oil fell during the first years of the pandemic, but once economic activity became to resume, the demand for oil drove up the price. If you had bought oil companies a year ago, then you would have done well.

An article from Reuters from the end of October, Exxon Mobil reported net income of $6.75 billion or $1.57 a share in the 3rd quarter, the highest since 2017. A year earlier, the company had reported a loss of $680 million or 15 cents a share. The reason oil and gas prices have doubled in the past year.

With the increase in profits, ExxonMobil will increase the stock buyback which has been suspended since 2016. The company was once the largest US corporate repurchaser of shares. (When a company repurchases shares, there are less shares and if earnings remain the same the earnings per share (EPS) is higher which if the company trades at the same multiple to earnings, the share price should increase)

Linking to dividend paying stocks, the large oil and gas companies have for decades have been some of the consistent profitable companies which pay dividends. It was hard not to own them, as the world transitions to using less energy the oil and gas have a role to play. It is a personal choice if you want to own them directly or indirectly but the results of the company can be easily seen by watching the price of a barrel of oil. If it stays steady or goes up, the higher revenues and profits means the dividends will flow into your account. Similar to all investments there are alternatives and if you do not wish to own the oil and gas directly, Microsoft overtook Exxon as the biggest dividend payer in the US.

There are more questions than answers, till the next time – to raising questions.

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