One of the crazy things about stock market investing is that we can unload a stock on a whim. We could spend three decades owning some Exxon stock passed down to us from our great-grandparents, collecting the dividends and adopting the perspective of a long-term business owner, and all of a sudden, we could sell it all after waking up in a cranky mood one day, logging into our brokerage account on our computer, typing in the three letters “XOM”, and then clicking “sell.” In the wink of an eye, you can undo decades of sedulous business accumulation. I find it scary how easy it is to undo a good thing.
Lately, I’ve been reviewing the relationship between dividends and earnings (as well as cash flow) among five of the six energy supermajors on the planet: ExxonMobil, Chevron, BP, Royal Dutch Shell, and ConocoPhillips.
And I was struck by one fact in particular: the dividends at all five companies consumed less than 40% of the cash flow per share (note: I normalized the figures at BP to adjust for the asset shedding in response to the potential litigation risk). Considering that Exxon paid out 76.7% of its cash flow as dividends in 1968, this is marked shift in the general strategy of the oil supermajors over the past several decades.