The Oil Drum

The NYT (login req) recently looked at Exxon's capital investment vs dividend payment history since 1976. Whereas they used to invest $2 for every $1 returned to shareholders, this dropped to $1:$1 after 1997, and was only $0.70:$1 in 2005.

I checked back to 1976, and found that until 1997, Exxon always invested more than it made. Now it invests less than half of profits.

One way to monitor what Exxon Mobil does with its money is to compare the amount it distributes to shareholders, via share repurchases and dividends, with the amount it invests in capital spending, exploration and research and development.

A decade ago, Exxon invested more than $2 for every dollar it distributed to shareholders. Last year the figure was 70 cents.

In 2005, it reduced the number of shares outstanding by 4 percent.

There is a phrase for that strategy: gradual liquidation. It is an excellent strategy for a company in a declining industry with few investment opportunities. Let us hope that is not the case here.