ExxonMobil Potentially Generates Over $165 Billion in Excess Corporate Funds following Dividend Disbursements up to 2030
ExxonMobil (XOM 0.51%) has transformed into a generous cash-dispensing entity in recent years. The petroleum titan churned out sector-topping cash flow from operations of $17.6 million during the third quarter. It then utilized this cash to expand its business ventures and generously reward its shareholders.
This oil corporation could potentially generate an even more substantial cash flow bounty in the upcoming years. Let's delve into its strategy to amass a small fortune over the next few years.
Spending money to generate wealth
ExxonMobil lately unveiled its 2030 blueprint. This strategy seeks to boost the company's annual earnings by an incremental $20 billion and boost its annual cash flow by $30 billion by 2030. This implies annual compound growth rates of 10% for its earnings and 8% for its cash flow.
The core of this strategy lies in Exxon's commitment to allocating substantial resources to business growth. Exxon anticipates its capital spending to range between $27 billion and $29 billion next year, escalating to a range of $28 billion to $33 billion annually from 2026 to 2030. In total, Exxon plans to invest $140 billion into key capital projects and its Permian Basin development program. Exxon expects these investments to yield returns in excess of 30%. Additionally, the company aims to slash another $7 billion from its operational expenses over the subsequent years.
These catalysts will propel Exxon's annual cash flow from operations from approximately $50 billion this year to around $80 billion by 2030. This assumes oil prices hover around $65 per barrel, which is lower than its recent price of mid-$70s.
Redistributing the prosperity
Owing to the high limit on Exxon's projected capital spending budget, its growing cash flow will translate into enhanced free cash flow. At a $65 oil price, Exxon would accrue a total surplus free cash flow of $165 billion by 2030 beyond its present dividend payouts.
Exxon is currently one of the world's most prominent dividend payers. It distributed $4.3 billion in the second quarter, making it the second-largest dividend disbursement among S&P 500 members during that period. It has disbursed a total of $12.3 billion in dividends through the first nine months of this year.
The company recently extended its dividend payment streak for the 42nd year in a row. Only 3.5% of S&P 500 companies can boast of this achievement. This steady upward trend is likely to persist, given Exxon's expectation of producing $165 billion in surplus cash despite maintaining its dividend payments at their current level.
Exxon will undoubtedly return additional cash to its shareholders through share repurchases. It anticipates buying back about $20 billion in shares next year, followed by another $20 billion in 2026, assuming favorable market conditions in the oil sector. This is more than its expected share repurchase level of $19 billion this year. Given the forecasted growth in its cash flow, Exxon could increase its share repurchase rate in 2027 and beyond if market conditions remain favorable.
Exxon's strategy will also allow it to preserve its formidable balance sheet. Exxon currently boasts an AA- credit rating, one of the highest in the oil sector, and the industry's lowest leverage ratio. Exxon concluded the third quarter with a net-debt-to-capital ratio of 5% following the addition of $27 billion to its cash reserves. It should have the financial wherewithal to continue paying off debt and bolstering its cash reserves, positioning it strategically to weather the subsequent oil market downturn.
Exxon also possesses the flexibility to utilize its reserves to fund future acquisitions. The oil company usually funds acquisitions with stock; Pioneer and Denbury Resources are recent examples of all-stock deals. However, if necessary, it could engage in an all-cash acquisition or incorporate a cash component to finalize a takeover.
ExxonMobil's strategic investment of $140 billion into key capital projects and its Permian Basin development program is expected to yield returns exceeding 30%, demonstrating its commitment to leveraging finance and money for business growth. With an anticipated free cash flow surplus of $165 billion by 2030, Exxon is poised to continue its generous dividend payments to shareholders, currently one of the largest among S&P 500 companies.
