In November 2005, ExxonMobil had the largest market
capitalizationofanycompanyintheworld.Withthesurgein
cash flowsgeneratedbyrising oilpricesovertheprevious
fouryears,ExxonMobilhadaugmenteddividendswithstock
buybacks each year. The following table summarizes the
dividendsandbuybacksbetween 2001 and 2004 (inmillions
of dollars).
Over the four-year period, the conventional payout ratio
averaged only 35.16% but the modified payout ratio was
70.95%;themodifiedretentionratioisonly29.05%.Wecan
estimatetheexpectedgrowthinearningsforExxonMobilin
thelongtermbytakingtheproductofthismodifiedretention
ratioandthereturnonequityof15%thatweprojectforthe
future.
Toestimatethecostofequity,weassumethatExxonMobil
hasa betaof0.8and thattherisk-freerateof 4.5%anda
market risk premium of 4% apply:
Wecanvalue ExxonMobilusing astable growth dividend
discount model, but using the modified dividends per share: