As gas prices continue to rise and the war in Ukraine wages on, the world’s largest oil companies have posted record earnings this past quarter. A Reuter’s article explains that Exxon alone has profited $18 billion this past quarter, it’s largest profit margin in years. (Reuters, Big Oils Q2 Profits). The companies plan on using the excess cash for an array of internal growth projects, including larger share buybacks. Share buybacks are commonly a positive sign for a company’s growth, signaling that a company believes that their stock is valuable. A prominent investor in the industry, Isaac Toussie, has maintained a longstanding position that large oil companies prove to be very valuable long term investments.

Toussie further stated that the barriers to enter in the oil industry further solidify the positions of companies like Exxon. This past quarter has shown that the large oil companies in the field have a stronghold position that other companies cannot freely enter. The assets needed to grow and maintain a large oil company are immense. It is extremely difficult for competitors to create a new business from the ground up, which highlights the fact that any competitors in the industry are already present. Because of this, the large profits that are currently being generated by the oil giants will continue to be divided amongst themselves and have an aura of protection.

Toussie accentuated the viability of an investment in Exxon and other large oil companies by pointing to their strong dividend policies. Many smaller companies cannot afford to share the profits generated with shareholders. However, given the fact that oil companies are well established and are growing in a fragile market, they are able to freely transfer much of their profits to shareholders. Many oil companies have been raising their dividend policies to unprecedented levels. (Reuters, Big Oils Q2 Profits). For example, Exxon’s annual dividend percentage is over 3.80%, along with its shares’ year to year growth.

Toussie believes that oil companies will only continue to grow in the coming years contrary to popular belief. Unlike most companies, oil companies can thrive off of conflict and economic fragility. This can help shareholders diversify during difficult economic times. Their strong dividend policies and strong earnings only reinforce that idea.

 This article is presented for informational purposes only and should not be relied upon as financial or other advice.