This 3% yielding energy stock has increased its dividend through the last 4 recessions

Recessions bring a lot of uncertainty. This can cause companies to become more fiscally conservative. They often pause to increase their dividends andin some cases, reduce or suspend payments to save cash.

However, that it wasn’t the case of the oil giant ExxonMobil (XOM 1.39%) over the years. It has increased its dividend for 41 consecutive years, which includes four recessions and many other oil market downturns. While its past performance in a recession doesn’t mean Exxon will continue to deliver a growing dividend going forward, it’s in a great position to weather future economic and oil market storms. With its yield currently around 3% (about double the market average), it looks like an excellent source of sustainable and growing dividend income.

The keys to ExxonMobil’s success

ExxonMobil is no ordinary oil company. Most companies in the energy sector focus on one aspect of the industry’s value chain (upstream, midstream or downstream). Exxon, on the other hand, is a globally integrated energy company. It produces oil and gas all around the worldfocusing on regions with low cost resources. It also operates midstream assets such as pipelines for transportation its oil and gas to higher value markets. Finally, Exxon has refinement and chemical facilities that produce higher value petroleum products.

This integrated approach allows Exxon to maximize value of each hydrocarbon molecule it produces. Company strategy also act as a natural hedge against commodity price volatility. Its downstream assets buy hydrocarbons to turn into higher-value products such as gasoline and petrochemicals, which tend to see higher demand when prices are lower.

As a result, Exxon is usually one of the the most profitable oil companies in the world. For example, its earnings in the second quarter were almost double those produced by Chevron, and several times higher than others in the sector.

The company also has a fortress-like balance sheet. It increases cash and balance sheet capacity when commodity prices are higher. The it gives him flexibility to continue to grow its operations and dividends during recessions. Exxon at present it has a high Aa2/AA- credit rating and a low net debt-to-equity ratio of 14%. His net leverage ratio it is 6% after taking into account the $26.5 billion of cash on its balance sheet at the end of the second quarter.

Building a more profitable oil company

Exxon plans to become an even more profitable energy company in the future. It is investing heavily to enhance its already strong portfolio of global resources and products business solutions. They are also working to provide billions of dollars in structural cost reductions.

The company’s current corporate plan would be more than double its earnings potential from the benchmark from 2019 to 2027. It is on track to reach this level. The company’s cost-saving initiatives have already generated annual savings of $10.7 billion. It expects to bring in another $600 million in the current quarter and a cumulative $5 billion of additional cost savings by 2027 compared to last year’s level.

Meanwhile, his high-yield investment strategy is paying dividends. Exxon posted industry-leading earnings in the second quarter despite continued volatility in the global oil and gas market. His earnings should increase in the futurefueled by its pioneering acquisition of Pioneer Natural Resources and its high-yielding capital investments. The company is working to expand its global oil and gas production to more than 5 million barrels of oil equivalent per day by 2027 (up from 4.1 million BOE/d this year). In addition, it has several product solution projects underway, which could increase the segment’s earning potential from $1.7 billion this year to $4.7 billion by 2027.

Exxon’s rising earnings and free cash flow will allow it to return more cash to shareholders in the future. It sent investors $9.5 billion in the second quarter, paying out $4.3 billion in dividends (the second most in S&P 500) and a $5.2 billion stock repurchase. Exxon expects to increase its pace of share buybacks now that it has completed its acquisition of Pioneer. In the meantime, it should have enough fuel to keep growing its dividend.

A stock of oil for all weathers

ExxonMobil has built its business to thrive in any market condition. This has allowed it to continue to grow its high-yielding dividend despite several recessions and oil market downturns over the past 41 years. Given its fortress-like financial profile and visible growth prospects, it is in a great position to continue its payout growth going forward. These characteristics make Exxon a great one dividend stocks to hold if you’re worried another recession could be around the corner.