The Arsenal of the Income Investor

I have been thinking about some of the recent ruckus in the oil industry, and the perpetual trend of poor timing regarding oil stocks–when the earnings are exploding and the valuations are high, people run towards these firms. And when the dividend cuts start coming, the retreat escalates. I understand why it happens–few want to see collapsing earnings, dividends, and stock prices of the companies they own, but the performance of anything oil-related is tied to the cyclical performance of oil.

The reason why you only pay 10x earnings for Exxon when earnings are growing fast (rather than something like the 20x earnings you regularly see with Coca-Cola) is that these firms often carry plummeting earnings far off in the distance. If you bought Exxon in 2003, the reason why you only pay 10x earnings is because you know that years like 2008, 2009, 2014, and 2015 will come along … Read the rest of this article!