Warren Buffett famously said that he is trying to “be fearful when others are greedy and be greedy only when others are fearful.” With the S&P 500 more than 30% in the last 12 months and the Nasdaq-100 rising over 50%, there is a pretty strong argument that some investors are getting greedy.
So am I afraid? Not precisely. I am very selective about which stocks I buy (just like Buffett). But ExxonMobil (XOM -0.18%) stands out as a stock that meets my strict criteria. Here are three reasons why I just bought this high-yield dividend stock.
1. An attractive valuation
The S&P 500's cyclically adjusted price-to-earnings (CAPE) ratio, also known as the Shiller PE ratio, is nearly 34. That's the highest level since early 2022, when the index plunged 19%. That's higher than the S&P 500 CAPE index in 1929, before the infamous stock market crash in October of that year.
I mention this because I think it's especially important to pay attention to stock valuations in a market that could be priced at a premium. The good news is that ExxonMobil is an outlier.
Shares of the oil and gas giant trade at just 11.7 times forward earnings. In comparison, the S&P 500 future earnings multiple It's a lofty 21.3. ExxonMobil's valuation is also cheaper than the S&P 500 energy sector's forward earnings multiple of nearly 12.7.
2. A fantastic dividend
I am not yet dependent on income from my stocks. However, I still like receiving solid dividends because they increase my total return.
ExxonMobil hits the ball out of the park in this category. Its dividend yield currently stands at almost 3.5%. The company has increased its dividend for 41 consecutive years.
I fully expect ExxonMobil to join the elite group of stocks known as Dividend Kings within the next few years. The oil producer's dividend payout ratio remains low, just 41%. Management understands that the dividend is one of the main reasons many investors own the stock, and certainly has ample motivation to maintain the streak of dividend increases.
3. A potentially huge growth opportunity
ExxonMobil's valuation and dividend wouldn't mean much if you thought the company couldn't grow. However, I bought the stock because I anticipate solid growth in the coming years.
Western Oil CEO Vicki Hollub predicts an oil shortage is looming by the end of 2025. She believes there are not enough new crude reserves to meet current demand. I'm not sure if Hollub's prediction will come true, and even if she did, if it will happen as quickly as she hopes. However, I agree that oil prices are likely to rise in the not-too-distant future. That's good news for ExxonMobil as one of the world's largest oil producers.
I'm especially intrigued by ExxonMobil's enormous growth opportunity in carbon capture. The company has estimated that capturing and storing carbon dioxide will be a $4 trillion market by 2050.
ExxonMobil is investing heavily in carbon capture technology. CEO Darren Woods said on the fourth quarter conference call: "[W]"We are convinced that carbon capture is going to play a really important role in helping society meet its ambitions of reaching net zero emissions or achieving certainly significant reductions in carbon emissions."
Of course, it's still early. Woods acknowledged that there are big challenges in capturing carbon dioxide profitably. However, ExxonMobil and other companies continue to move forward. I'm cautiously optimistic that carbon capture could be a huge growth driver for ExxonMobil in the long term.
Checking all the boxes
The bottom line for me is that ExxonMobil checks all the boxes. Value investors should like its low earnings multiple. Income investors should like its high dividend yield and impressive track record of dividend increases. Growth investors should be interested in ExxonMobil's opportunities with carbon capture.
I haven't gotten too greedy buying ExxonMobil; It's less than 1% of my portfolio. As for being afraid, the only fear I had with this stock was FOMO: the fear of missing out.
