Exxon Board Shakeup More About Dividend Than Climate Change, Analyst Says

Activist Exxon Mobil Corporation XOM investors recently won a third seat on the company’s board of directors, and media outlets have reported that shareholder approval of the board shakeup is largely motivated by a desire to prepare the company for a lower-carbon future.

However, Bank of America analyst Doug Leggate says the Exxon boardroom drama has more to do with the stock’s 5.4% dividend than climate change.

Board Shakeup: Leggate said discussions with investors and one board nominee suggest the stock’s dividend is at least as important to investors in determining its value as its ESG practices.

“We believe XOM has capacity to raise its div in 2021, maintaining a 37 yr track record of div increases & reinforcing confidence in a sustainable and growing dividend, with improving dividend cover,” Leggate wrote in a note.

Activists have been pushing for Exxon to cut spending, increase shareholder returns and invest in renewable energy technology.

Related Link: A Clean Energy 'Reality Check' At BofA's Energy Transition Conference

How To Play It: Bank of America is projecting $4.13 in EPS from Exxon in 2021, ahead of consensus analyst estimates of $3.70. Leggate is projecting free cash flow of at least 19.7 billion per year through 2023. Leggate is bullish on the stock and says Exxon shares are poised to outperform after several years of lagging significantly.

Crude oil prices recently hit multi-year highs, and Exxon shares are up 56% year-to-date in 2021, more than triple the return of the S&P 500.

Bank of America has a Buy rating and $90 price target for Exxon.

Benzinga’s Take: The global shift from fossil fuel to renewable energy will not occur overnight, and the world will continue to need energy in the meantime. There’s certainly plenty of money to be made investing in alternative energy in the long-term, but analysts say there will still be big profits in the oil and gas industry for at least another decade.

Photo by Michael Rivera via Wikimedia.