XOM is no stranger to stock splits , having completed seven of them over the course of its history. That said, its last split was more than 16 years ago. Furthermore, the company's stock briefly ran into the triple digits in when crude was around that same level, but it didn't enact a split.
While this gap has many investors wondering when the company will split again, that timing isn't what should be on investors' minds these days. The main reason Exxon -- or any other company for that matter -- would split its stock is because the market price has risen to the point where it might start deterring investors from buying shares. That level was often too high for small retail investors, so companies would split their stocks so more people could invest.
That said, many companies still choose to split their stocks because it increases trading liquidity, while many investors see it as a sign that the stock is performing well. Given the rise of online brokers and the fact that more than 10 million shares trade each day, ExxonMobil does not need to split its stock at the moment.
That said, two catalysts could turn that tide and give the oil giant a reason to consider splitting its stock within the next five years. First is the potential for a significant recovery in the oil market a few years down the road.
Low oil prices over the past several years have driven down investment spending on new projects. As a result, the International Energy Agency recently concluded that "global oil supply could struggle to keep pace with demand after , risking a sharp increase in prices, unless new projects are approved soon. OPEC has warned of a potential superspike in crude if producers don't increase investments on longer-term projects.
HAL recently cautioned that "the market is going to catch up" to years of underinvestment. That executive suggested that "you'll see some kind of spike in the price of oil. Maybe somewhere around , but it's got to catch up sooner or later. But even if crude prices don't rebound sharply, Exxon has the potential to deliver healthy stock price appreciation over the coming years. That's because the company currently generates more than enough cash flow to finance both its dividend and capital investments thanks to its low-cost supply base.
That future production growth should fuel more cash into ExxonMobil's coffers, giving it the money to continue to increase its dividend as well as repurchase stock. Those growing shareholder returns should eventually restart its stalled stock price, which might incentivize the company to split its stock as a demonstration of its belief that it can continue to create value over the long term.
While many investors like it when a company splits its stock, that act alone doesn't create any value. The company's knack for delivering returns-driven growth from projects like that is what has fueled its rising stock price over the years -- necessitating all those splits -- and it looks likely to continue given the current inventory of projects the oil giant has underway. That's why the timing of Exxon's next split doesn't even matter because the fuel for creating value for investors are those high-return projects.
Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns shares of ExxonMobil. The Motley Fool has a disclosure policy. You can follow him on Twitter for the latest news and analysis of the energy and materials industries: Skip to main content The Motley Fool Fool.
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