Exxon Raises its Dividend. Why the Stock Is Falling Anyway.

Exxon Mobil has invested to expand production during good times and bad over the past few years. (Clément Mahoudeau / AFP / Getty Images)

Key Points

• Exxon Mobil posts adjusted earnings of $1.88 a share for the third quarter, ahead of analysts’ estimates of $1.82.
• Revenue of $85.3 billion misses forecasts.
• Daily production rises to 4.77 million barrels from 4.58 million barrels a year earlier.

Exxon Mobil beat third-quarter earnings expectations and raised its dividend on Friday. But the stock was dropping, dragged down by the company’s increasing debt load in a time of falling oil prices—a combination that has sometimes played out poorly for energy companies.

In midmorning trading, shares were off 0.7% to $113.90. The stock was up 6.6% on the year as of Thursday’s close.

Exxon’s profits declined to $7.55 billion from $8.61 billion because the price of crude weakened. Oil futures are off 16% this year, and falling prices have weighed on Exxon’s results.

The company posted adjusted earnings of $1.88 a share; analysts’ consensus estimate was $1.82. Revenue of $85.3 billion fell short of Wall Street’s call for $86.5 billion.

Exxon is firmly in growth mode, despite the falling prices. Daily production rose to 4.77 million barrels from 4.58 million barrels in last year’s third quarter. Analysts had expected 4.7 million barrels.

“We delivered the highest earnings per share we’ve had compared to other quarters in a similar oil-price environment,” said CEO Darren Woods, referring to periods in the last decade when prices ranged from $65 to $75 a barrel.

Exxon also announced a 4% increase in its dividend payout, to $1.03 a share in the fourth quarter. That leaves the company with a dividend yield of 3.6%.

The company is rewarding shareholders with buybacks and dividends, but it isn‘t coming cheap. Exxon’s shareholder distributions are far outpacing its free cash flow, or the cash left over after a company pays its operating and capital expenses. In the latest quarter, distributions were $9.4 billion while free cash flow was $7.5 billion. Its net debt is growing, up more than $3 billion from last quarter.

“The trend in balance sheet re-leveraging may start to concern those investors who had grown accustomed to Exxon’s defensive characteristics,” wrote Citi analyst Alastair Syme.

Write to Avi Salzman at avi.salzman@barrons.com