Every now and then, when I am looking to procrastinate before I get down to write an article, I check through the search engine traffic to see what is bringing new people to the site. Pretty consistently over the past several months, many of you have stumbled onto here by looking for ways to buy shares of Exxon through Computershare.
Although googling something and actually doing it are two separate things (imagine a chart comparing people who googled “how to lose 20 pounds” compared to those that actually do it), I am glad to see that topic be on the minds of people because regular investing with Exxon Mobil is probably one of the surest paths to long-term wealth for someone who is committed to spending decades increasing their ownership in a particular position.
Exxon tends to come with two advantages that you can’t get by dripping, say, Coca-Cola or Altria through a Computershare account—first, there are no fees on the purchase of stock or reinvestment of dividends. This might be a moot point for someone investing $500+ each month, but if you are starting out by having $50 taken out of your checking account each month to buy stock, then having to deal with a $1 or $2 fee when you buy stock or reinvest dividends is a real burden dragging your returns.
But there’s more to the story than that, which makes Exxon particularly unique for perpetual dollar-cost-averaging. First of all, it rarely has a tendency to get overvalued. With the exception of a couple months in 2007, there’s really no point in Exxon’s trading history over the past two decades in which you’d look back and think, “Yeah, that would be a bad time to make a lump-sum investment, there.” When you’re a $400 billion energy behemoth, people know what you can do and they won’t think things like, “This baby is going to grow at 15-20% for the next ten years” so the stock tends to rarely trade above a fair price. With Hershey, things occasionally hit 30x earnings for a couple years here and there, and those prolonged periods of expensiveness due put a drag on earnings (although you’re still building wealth, so I am splitting hairs between the difference of 8.5% annual returns and 10.5% annual returns).
In terms of structure, Exxon has one of the best perpetual buyback programs in the world—there’s almost nothing like it, save for IBM, Wal-Mart, and Autozone, and perhaps a few others that don’t come to mind. Because Exxon generates so much free cash flow, they are able to retire 1.25% total shares each quarter. In other words, investors get about 5% annual returns automatically, just from Exxon using its free cash flow to reduce its share count. The profits are sturdy—coming in at $20 billion or so across 48 countries—and seem to provide the platform for a sustained buyback that will continue many years into the future.
And better yet, Exxon actually reduced its share count back in 2009, proving it didn’t fall victim to the common temptation to repurchase lots of stock when times are good and then turn off the spigot when a recession and a discounted stock price arrive. No, Exxon isn’t like Buffett, Singleton, or Tisch when it comes to only repurchasing stock during times of deep undervaluation, but compared to what you see against the rest of the large companies in the S&P 500, they are quite good at sticking to their plan (even if they didn’t increase their buyback during the most recent recession).
I also think investors could be receiving 10% or so annual dividend increases, as Exxon slows starts to increase its dividend payout ratio. It’s been increasing for three decades (and has been uninterrupted dating back to the Standard Oil days in the 1880s) and lets you quietly build wealth in a way that has a very high probability of occurring.
When you dollar-cost-average into Exxon stock, you are combining a lot of good things that are consistent with conservative principles of wealth creation. You are paying no fees. You are selecting a company with a great track record, and promising future business prospects. You are perpetually buying a stock that rarely gets expensive. Finding a way to get your hands on a couple hundred dollars worth of Exxon stock each month is one of those things that will lead you to wake up in twenty years and wonder, “How the heck did I get so loaded?”
Originally posted 2014-12-12 08:00:45.