Exxon For Income Planning

How being Ready for Investment Opportunities can change your Retirement Situation

Exxon For Income Planning
June 23, 2016

It is getting harder and harder to find great companies that pay a stable dividend above 3% these days. A lot of investors have moved into dividend-paying stocks and out of low-yielding Treasury bonds over the past eight years. However, there are still some dividend payers that can get you a yield above 3% with dividend growth that approaches double digits.

A Look At Exxon

After being down over 30% from its peak in 2014, Exxon is now up 32% from its recent low. This is a missed opportunity for many of us, no doubt about it, but Exxon's stock price is still 13% below where it was in 2014.

Exxon was able to maintain, and even grow, its dividend during the recent turmoil in the energy industry, so its dividend yield has risen substantially as its stock price fell.

The dividend yield for Exxon is now 3.3%. It has not been this high since the late 1990s.

Besides its dividend yield, Exxon has many other things going for it. During the last recession, unlike most companies, Exxon actually increased its dividends. Over the past five years, the dividend growth rate has been about 10%. This holds for the past ten years of history as well, rewarding investors with constant dividend growth. Their payout ratio is also very low compared to most companies in the S&P 500. At 50%, this low payout ratio means that even if their cash flow dips a bit, they can still easily continue to pay their dividends. Having over $50 billion cash on hand also helps with this.

Exxon's Dividends And Retirement

Finding companies with a solid dividend yield combined with constant dividend growth above 5% can completely change a person's retirement portfolio. To show how important finding great dividend payers can be, I used the WealthTrace Financial Planner to run a couple of retirement scenarios.

Let's first take a look at a 55-year-old couple approaching retirement. Their goal is to live off their retirement income without dipping into their investment principal.

My assumptions are this:

  1. Retirement Age: 65
  2. Retirement Expenses: $60,000 per Year
  3. Current Investment Assets: $400,000 with 75% in IRAs and the remainder in taxable investments
  4. Asset Mix: 70% in dividend-paying stocks, 30% in Treasury bonds
  5. Social Security: $40,000 combined per year at age 67

A Typical Retirement Portfolio

The goals and assets I described above are typical of many retirement portfolios I see. The couple's stocks have an average dividend yield of 2%. If all of their dividend payers average a dividend yield of 2% with 7% dividend growth, this couple will not have enough income in retirement to cover their expenses as the chart below shows.

I also found that they would run out of money by age 84 in this scenario.

Retirement With 3.3% Yielding Dividend Payers

Now let's take a look at their situation if they could move their money into dividend champions like Exxon that have a 3.3% dividend yield with 7% dividend growth.

This higher yield would provide an income to cover their expenses in every year. As a side note, keep in mind that I am not recommending that people only invest in one stock. We want to diversify among many great dividend payers that are similar to Exxon in terms of their dividend-paying abilities.

What We Learned

It is not as easy as it once was to find great companies with a good dividend yield and a history of increasing their dividends. When opportunities arise, like they did over the past year with Exxon, we need to be ready. It can completely change a person's retirement situation, as I have written about before when describing how a person can retire at 50 years old. Locking in a solid dividend yield with growing dividends is the easiest way in today's world to retire comfortably.

Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.

Photo ©iStock.com/Coast-to-Coast

  Conversation   |   9 Comments

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irene | 06.23.16 @ 18:31
Great info, I really do need to start planning more seriously for retirement
Alec | 06.23.16 @ 18:32
The financial situation caused by the bust we had in 2008 still hasn't really recovered, so it makes sense that companies are taking a hit with their profits and being unable to grow. I think because of that, investment nowadays is still a big risk. Although now I wish I had invested in Exxon!
Steffanie | 06.23.16 @ 18:33
I find this really interesting. I will definitely be talking to my husband about it, so we can talk more about our retirement option. Gotta get to planning now.
Erin | 06.23.16 @ 18:33
I'm sure it was a missed opportunity for some people, but there are also other factors at play. Some people do not want to get involved with a company who has environmental disasters in its history or may want to invest in up-and-coming companies that have potential for huge growth. People who are close to retiring don't have as many options, and everything in the market is risky - even those that are advertised as safe. I don't envy those who are trying to play the market for their retirement savings.
Carla | 06.23.16 @ 18:34
It sounds like Exxon would be a good investment for retirement. Also both retirement scenarios offer interesting results.
Sarah | 06.23.16 @ 18:36
Interesting. I'd love to be ready to invest somwhere but hey, that takes money.
Elaine | 06.23.16 @ 18:37
Glad things have changed for Exxon but I'm sure some have missed out on some great opportunities.
Patricia | 06.23.16 @ 18:42
My husband does industrial construction - meaning he builds and repairs plants. The oil and gas industry seems to always be a good investment. There are so many jobs out there to add or build new plants. Even though the gas prices are down, they're obviously making enough money to do all this construction.
Brittany | 06.23.16 @ 18:45
This is a lot of wonderful info, I am still in my 20s but I don't think it's ever too early to start planning investing.
$commenter.renderDisplayableName() | 11.25.20 @ 05:35