Time for Another Performance Check
For some background on the idea behind the Performance Check, and the XIRR function used for the calculations, please see my first post in this series.
The series continues with a look at another dividend-paying stock from my Portfolio (now the 14th overall). My last Performance Check was 3 months ago when I reviewed my performance for Qualcomm (QCOM). It’s been a bit longer than I expected between such posts, so I’m happy to deliver another installment.
This time around I’ll be checking my performance of Exxon Mobil (XOM), my only stock in the Energy sector. XOM resides in the Major Integrated Oil & Gas industry.
From the company’s website, Exxon Mobil states they are… one of the world’s largest publicly traded energy providers and chemical manufacturers. They develop and apply next-generation technologies to help safely and responsibly meet the world’s growing needs for energy and high-quality chemical products.
The company has been operating for well over 100 years. It started out as a regional marketer of kerosene in the U.S., but is now a leading energy and chemical innovator. XOM operates facilities or markets products in most of the world’s countries, and explores for oil and natural gas on six continents.
Exxon Mobil is a descendant of John D. Rockefeller’s Standard Oil. XOM was formed by the 1999 merger of Exxon (formerly the Standard Oil Company of New Jersey) and Mobil (formerly the Standard Oil Company of New York), and is headquartered in Irving, Texas. The company’s brands include Exxon, Mobil, Esso, and ExxonMobil Chemical.
In recent years, XOM has struggled to grow their business. When oil and gas prices plunged in March, the environment only got worse for XOM. Now debt is rising, capital expenditures are falling, and paying the current dividend has become a burden. This situation makes is difficult for the company to invest in its future.
In addition, XOM has recorded quarterly losses in each of the past two quarters (for the first time in over three decades). Needless to say, XOM has its hands full right now, as it tries to navigate the business through these challenging times.
The turn of events in 2020 has led to a massive decline in the stock price, which has in turn negatively affected the performance of this holding in my Portfolio.
XOM has never been one of the top stocks in my Portfolio when it comes to value, but the stock is the third largest in my Portfolio in terms of dividend weight. Thus, it’s a significant contributor to my annual dividend income.
Before we examine the stock’s performance, let’s first check out the historical dividend growth for XOM…
XOM is a Dividend Aristocrat, with over 25 consecutive years of dividend growth. In fact, that streak is currently at 37 years.
Dividend growth has been decent over all the reporting periods… on the low end showing just under 5% growth over the last 3-year and 5-year periods. However, with the recent troubles that have developed this year, XOM chose to forego a dividend raise in April (the month they’ve typically raised their dividend). Thus, the dividend growth numbers are likely to be declining, and their Dividend Aristocrat status appears to be in jeopardy.
My Personal Performance for XOM
Below is a capture of the spreadsheet I keep with my XOM cash flows, and the calculated XIRR. Compared to my five legacy Portfolio holdings (PG, RPM, AFL, PEP & JNJ), the table for XOM is small, due to its shorter holding period and small number of transactions. With XOM being a relatively new Portfolio position (about 5 years), I don’t have a large amount of data/time to factor into the return calculated in this Performance Check. Therefore, as I move forward in the near-term, large price changes can have a significant impact on my annualized return.
Here’s a note with regard to the possible ‘Type’ column entries: EOY Value = End Of Year Value, Dividend = a dividend that was not reinvested (a cash outflow).
The duplicate EOY Value entries at the end of each year (one negative, one positive) do not affect the cash flow, and can be thought of as boundary markers, allowing me to make the individual yearly return, and the annualized total return calculations.
My transaction history with XOM has been fairly boring. You’ll see only purchases, with the biggest purchases happening early on, and smaller purchases happening over time as I tried to average down my cost basis as the stock price declined.
My initial purchase was 50 shares back in 2015. That was followed by purchases of 25 shares in 2017, 20 shares in 2018, 10 shares in 2019 and 10 more shares at the start of this year. All totaled, I’ve purchased 115 shares.
Along the way, I’ve been holding my shares and reinvesting my dividends. I’ve added over 19 shares through dividend reinvestment, so my current position sits at a little over 134 shares.
The following price chart is also helpful to see. It shows the stock price change since my initial purchase on 7/7/2015.
As you can see, the price for XOM had been holding fairly steady, to slightly declining, until the start of 2020. At that time, the stock price truly sank, and it now seems mired in that slump.
XOM is down about 35.5% for the year (including dividends).
As a result of its price decline this year, XOM currently pays a very generous dividend of 8.01%, well above it’s normal yield. This is much larger than my Portfolio average of 2.67%, too.
However, the dividend seems to be at risk of a cut in the near future if XOM’s declining financial picture doesn’t clear up very soon.
Probably the best thing that could happen for XOM in the near-term is to see the price of oil increase to something north of $50/barrel. However, given what appears to be a current oversupply, and reduced demand thanks to the pandemic, the price of oil may not rise to that level very soon.
After the stock price haircut XOM has received this year, the stock currently has a value weighting in my Portfolio of 1.35% – my 32nd largest position (out of 49 stocks). However, its dividend weighting is significant at 4.04%, which is behind only Abbvie (ABBV) and QCOM in my Portfolio.
All XOM dividend payments I’ve received since my position was started have been reinvested.
My current investment in XOM is $9,040.90. My cost basis, which includes $1,371.26 in reinvested dividends, is $10,412.16.
Meanwhile, the current value is $5,826.78, which sadly reflects a hefty capital loss (on paper) of $4,585.38. The annualized total return ends up being -11.98%, covering my initial purchase on 7/7/2015, through 8/8/2020. That’s an ugly compound annual return to say the least. Unfortunately, my additional purchases over time have only increased my losses.
Coming into 2020, I was about breakeven for performance with XOM, showing an annualized return (including dividends) of just -0.07%. While I can’t say this is good, it’s a major step up from the -11.98% return I show today. That’s a big change to my annualized return in just a matter of months.
Since XOM has such a large dividend weighting in my Portfolio, and because its dividend appears to be at risk, I’m closely watching the stock for developments.
The possibility of selling my XOM position before year’s end definitely exists, especially if the dividend is cut (or looking likely to be cut). I could use the capital loss to offset a good chunk of realized capital gains I have on the books in 2020. Replacing the dividend income I’d lose with the sale would be no easy task, as I typically don’t invest in companies with such a high yield. Therefore, I’d probably have to invest the sale proceeds plus additional capital in order to recover all the lost dividend income.
Summary
XOM was already one of the poorest performers in my Portfolio, but that has escalated to the downside in 2020. I’m currently sporting a -11.98% compound annual growth rate with XOM.
If the company can at least maintain the dividend over the coming year, I might be inclined to ride things out in hopes of a recovery. However, a dividend cut would certainly increase the probability of me selling the stock, taking the loss for tax harvesting purposes, and finding better prospects elsewhere. As you might already know, I’m not a huge fan of the energy sector, so selling my lone holding in the sector wouldn’t leave me with any concerns about not having a representative from the sector in my Portfolio.
Bringing the returns for my other Performance Check stocks (PG, RPM, AFL, PEP, JNJ, AL, GILD, TROW, FAST, WPC, O, GNTX & QCOM) up-to-date allows for the comparison below.
Note that the rightmost column shows the year of my initial purchase for each stock, just to provide some detail with regard to how many years are part of the annualized return.
XOM debuts at the bottom of my table from a performance perspective, ranking last (by a wide margin) in terms of annualized return for the Portfolio stocks I’ve reviewed thus far.
Part of the reason there’s such a big gap is that poor performers usually don’t get a chance to hang around in my Portfolio.. they get sold instead. To be honest, the breakeven performance of XOM in my Portfolio as we started 2020 was acceptable, but the recent decline (coupled with XOM’s near-term prospects) has me re-evaluating the stock, for sure.
My last Performance Check post was in early May. This was still early in the recovery from the late-March stock market lows. With 3 additional months of markets gains under our belts since then, one might think most or all of these stocks will have seen improvements in calculated annualized return. However, that’s not the case.
Gilead Sciences (GILD) notched my largest a decline in annualized return, falling from 4.20% to 2.48%.
I also had some very minor retreats from Johnson & Johnson (JNJ) and Aflac (AFL). JNJ moved from 9.31% to 9.21%, while AFL slipped from 10.64% to 10.59%. Nothing to worry about here.
All other stocks in the table above managed to make gains in their annualized returns. Performance gains were led by QCOM, Fastenal (FAST), and T. Rowe Price Group (TROW).
QCOM jumped from an annualized return of 13.44% back in May to a current return of 21.18%. Sweet!
Overall, the performance of the group looks good. Only 3 of the 14 stocks are showing compound annual growth rates less than 8.4%. In addition, after some recent price gains, I now have 3 stocks showing annualized returns over 20%.
On deck for my next Performance Check is Skyworks Solutions (SWKS). This stock has been on a roll recently with 5G set to ramp up. It’s performance should be massively better than that which I just reviewed from XOM. Maybe it can be another stock with 20% annualized returns… we’ll see.
Have you been monitoring the performance of your portfolio stocks? If so, have you identified any poor performers like I have with XOM? I look forward to your comments!