Trending: Exxon Mobil’s Strategy of Doubling Down on Oil Backfires

Dividend.com analyzes the search patterns of our visitors each week. By sharing these trends with our readers, we hope to provide insights into what the financial world is concerned about and how to position your portfolio.

Embattled energy company Exxon Mobil has trended first this week as the company is facing angry shareholders over its strategy of doubling down on oil. Second in the list is Taiwan Semiconductor, which – along with the entire semiconductor industry – has benefited from a shortage of chips. IBM, the legendary computer company that has lately moved into cloud, is third. The list is closed by Merck, which is now developing a treatment for COVID-19 after two vaccines failed to show positive results.

Don’t forget to read our previous edition of trends here.

Exxon Mobil (XOM) has taken the first place in the list this week with a rise in viewership of 13%. The oil major has been caught in the news lately, as its strategy of doubling down on oil exploration at a time when peers are moving towards cleaner alternatives to get rewarded with higher stock multiples.

Exxon has come under fire from a host of shareholders, with recently founded ESG activist hedge fund Engine No.1 nominating candidates to the board and pushing for a revamped strategy focused around carbon emissions reduction and increased emissions disclosure. Under pressure, Exxon moved quickly to add two new board members, including Jeffrey Ubben, the founder of Inclusive Capital Partners who is looking to raise $8 billion for an ESG investment strategy.

However, Exxon’s move has failed to soothe Engine No. 1, and the oil major is likely to face a showdown at the next annual meeting.

Shares in Exxon have risen by 45% since the start of the year, giving the company a market capitalization of $255 billion. The strong performance was partly due to the activist campaign, a commitment from the company that it would address its strategy, and a strong recovery in the oil price. Competitors Chevron (CVX), BP (BP) and Royal Dutch Shell (RDS-B) posted gains between 21% and 30% during the same period. However, Exxon still underperformed all these three peers over the past five years.

Exxon pays an annual dividend of $3.48 per share, representing a yield of 5.7%.

Source: Barchart.com

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Taiwan Semiconductor (TSM) is slightly behind Exxon Mobil with a 12% increase in viewership.

Taiwan Semi shares have been on a tear over the past year, rising by more than 165%, as demand for chip manufacturing has been skyrocketing. In fact, it appears the U.S. economy faces a shortage of chips, given rapidly rising demand from a host of applications, including cloud and artificial intelligence. Taiwan Semi revenues increased by 25% in 2020,despite the coronavirus pandemic, while net income surged by 50% to $18.3 billion.

As a result of demand and strong results, Taiwan Semi has been rushing to build more factories. The company is putting aside between $25 and $28 billion in 2021 to build more factories that make advanced chips, a record amount.

Despite the massive capital outlays, Taiwan pays a decent dividend of $1.79 per share, resulting in a 1.5% yield. Taiwan Semi’s payout ratio stands at about 45%.

Source: Barchart.com

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Technology juggernaut IBM (BM) shares the second spot with Taiwan Semiconductor, seeing its viewership rise by 12%.

IBM, the technology giant that is transitioning from hardware to a cloud business model, has been among the few names that has not benefited from the market rally in technology names and cloud stocks in particular. Shares in IBM are up by just 20% over the past 12 months, while technology-heavy Nasdaq Composite is up by 84%.

IBM revenues declined 4.6% in 2020, while net income fell by 40% to $6 billion. A similar scenario happened in 2019. Over the past five years, IBM saw revenue growth only once, in 2018 by a meager 0.6%. IBM’s cloud revenues from its Red Hat division have been growing at a high rate, but they failed to offset revenue declines from its legacy hardware business. As a result, investor confidence is very low, with the stock trading at a price-to-earnings ratio of 20.

IBM’s flagging stock price performance has resulted in a high dividend yield. IBM pays an annual dividend of $6.5 per share, or a yield of 5.1%.

Source: Barchart.com

Pharmaceutical giant Merck (MRK) closes the list with a viewership increase of 3%.
Merck is making one of the latest attempts to benefit from the coronavirus pandemic with a drug that it hopes will treat COVID-19, the illness provoked by the coronavirus. In a phase II study, Merck’s drug molnupiravir showed a quick reduction in the virus in patients that were infected with the coronavirus.

If the drug is approved, it could prove a boon for the company, despite the presence of other treatments from Gilead (GILD), Eli Lilly (LLY) and Regeneron.

Earlier this year, Merck discontinued the development of a COVID-19 vaccine, after two jabs failed to show promising results in early studies. As a result of this failure to capitalize on the pandemic, Merck stock has underperformed its peers. Merck shares are up by 3% over the past 12 months, while SPDR S&P Pharmaceuticals ETF is up by 58%.

Merck pays an annual dividend of $2.60 per share, representing a 3.4% yield. The company pays out more than 40% of its earnings.

Source: Barchart.com

Exxon Mobil is facing pressure from its own shareholders to shift its strategy away from fossil fuels towards renewable energy, as the stock has underperformed. Taiwan Semiconductor is enjoying record demand for its chips and is deploying record amounts of capital to build new capacity. IBM has been experiencing declining revenues as high growth in the cloud division failed to offset revenue declines in its hardware division. Finally, Merck is betting on a COVID-19 therapy to help pepper a flagging stock price.

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