Why This Texas-Based Company's Stock Could Reward Long-Term Investors

ExxonMobil (NYSE: XOM) is the undisputed leader of the global oil industry. Last quarter, its $7.1 billion of earnings and $11.5 billion of cash flow from operations led all international oil companies (IOCs). Exxon also has an industry-leading balance sheet, returned more cash to shareholders than anyone in the oil patch last quarter, and has delivered peer-leading total shareholder returns over the past five years.

The Texas-based oil giant -- Exxon's global headquarters is just north of Houston -- is in a strong position to continue rewarding its shareholders in the coming years. Here's a look at what fuels that optimistic view.

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Exxon's bold plan to 2030

ExxonMobil operates under multi-year plans. Late last year, the global oil giant unveiled its plan to 2030. The company's long-term investment strategy aims to deliver an additional $20 billion in annual earnings and $30 billion in incremental cash flow by 2030. This outlook implies the company will deliver 10% compound annual earnings growth and 8% compound annual cash flow growth over the next five years. Those are solid growth rates for such a large company, especially in the volatile energy sector.

The energy company isn't banking on higher oil prices to fuel its earnings growth plan. Exxon can achieve its earnings growth target at an average Brent oil price (the global oil market benchmark) of $65 a barrel in 2030. While that's higher than the current price near $60 a barrel, Brent was over $70 a barrel at the time Exxon published its long-term outlook, and was just at its 2030 target price point a few weeks ago.

Instead, the main fuel source is Exxon's plans to invest $140 billion into high-return major capital projects and its Permian Basin development program over the next five years. Notable focus areas include expanding its world-class operations in Guyana, continuing to build out its global liquefied natural gas (LNG) capabilities, and growing its leading products solutions business by developing new petrochemical and refining projects worldwide. It's also investing in several low-carbon energy businesses, including plans to build a leading lithium business in the coming years. Exxon expects to earn returns in excess of 30% over the life of these investments.

Additionally, Exxon plans to continue executing its industry-leading structural cost savings initiative. Since 2019, Exxon has delivered $13.5 billion in structural cost savings, surpassing the total of all other IOCs combined. The company expects to achieve $18 billion in cumulative structural cost savings by 2030, further boosting its bottom line.

Returning its growing cash flow gusher to shareholders

Exxon estimates that its strategic plan can generate $165 billion in cumulative surplus cash through the end of 2030 after funding its massive capital investment target. The company has the flexibility to return most, if not all, this money to shareholders.

Exxon currently has the top balance sheet in the oil patch. The company finished the second quarter with an industry-leading net debt-to-capital ratio of 8%, bolstered by a cash balance of $15.7 billion. This provides the company with tremendous financial flexibility to continue investing in its business and returning cash to shareholders, even during periods of lower oil prices.

As a result, it will undoubtedly continue increasing its dividend, something it has done for 42 straight years. That leads the oil sector. Only 4% of companies in the S&P 500 have reached that level of consecutive annual dividend increases. This growth will add to Exxon's already attractive dividend, which currently yields 3.5%, nearly triple the S&P 500's level of less than 1.2%.

Additionally, Exxon will also continue to repurchase a meaningful amount of its shares each year. The company plans to repurchase $20 billion of its stock this year and a similar amount in 2026, assuming favorable market conditions. It could buy back even more shares in 2027 and beyond, especially if oil prices improve.

A potentially very enriching plan

Exxon has delivered leading total shareholder returns over the past five years by expanding its global energy business and maintaining a disciplined approach to capital allocation. Looking forward, the company's clear commitment to delivering healthy earnings growth and robust capital returns puts it in a strong position to continue growing shareholder value. This high return potential makes Exxon a compelling long-term investment.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.