Sunday, August 31, 2008

Exxon Shareholders Suffer Windfall Loss of -13.7%

Exxon's record profits and its possible "windfall profits" have received a lot of media attention recently - do a Google search for "Exxon's record taxes" or "Exxon's windfall profits" and you'll find several hundred thousand results for either. Do a Google News search for "windfall profits tax Senator Obama" and you'll find hundreds of links to news stories where Senator Obama has proposed taxes on Big Oil's "windfall profits."

CEP's Dean Baker explains here what windfall profits are (according to him), and why the government should act to prevent windfall gains.

In all of the discussions about Exxon's windfall, record profits, which are owned ultimately by Exxon's shareholders, nobody ever discusses how Exxon shareholds have been doing lately. So let's ask the question: With oil and gas prices at record recent highs (rising 50% this year), with Exxon profits at record highs, how is the average Exxon shareholder faring?

Well, not too well really. If you had bought one share of Exxon at the begining of the year, you would have paid $94, and you would have received a $0.35 dividend in Febuary, and $0.40 dividends in May and August, for a total of $1.15 in dividends this year. Exxon is now selling for $80 (see chart above), so your annual return this year from holding Exxon stock would be -13.7%, and a $1,000 investment in Exxon on January 1 would now be worth only $863. Seems like more of a windfall loss than a windfall gain for Exxon shareholders.

5 Comments:

At 8/31/2008 6:04 AM, Blogger juandos said...

Hmmm, Dean Baker thinks that rehashing class warfare in answer to Ben Stein's silly little commentary in the Red Rag: "First, close to half of stock, included oil company stock, is owned by very rich people, so the fact that a small portion is owned by firefighters has nothing to do with the time of day. Some of the oil companies' stock is owned by child molesters. Should we be discussing that?"...

What an amazing bit of thoroughly twisted logic that offers no valid reason to rip off the rich...

So Baker in his continuing attempt to to rationalize theft falls back on the socialist example: "The government often acts to prevent windfall gains. For example, if workers in a key industry opted to go on strike to press for higher wages, they would get put in jail. Mr. Stein may be too young to remember, but this is what happened to air traffic controllers when they went on strike in 1981"...

Maybe Dean Baker should've read Dr. Sowell's Feb. 5, 1999 commentary, most especially the last sentence: "We don't need more economists. We need more people to take Economics 1"...

 
At 8/31/2008 11:06 AM, Blogger Matt S said...

so if exxon posted billion dollar profits and the shareholders don't see any of it, then where'd it go?
Did it go to the CEOs and upper management? Did it go offshore? Did it go into infrastructure repair?

Or are stocks and profits not intertwined?

 
At 8/31/2008 11:50 AM, Anonymous QT said...

Or did it go into retained earnings from which dividends are paid as well as exploration and the development of new drilling techniques?

If the profits had gone to senior executives, we would know. Bonuses & salaries would appear on the Income Statement under Expenses. I posted the link to Exxon's financial results for 2007 which are available under the heading Investors.

Accounting is another dismal science which seems to be even less understood than economics.

 
At 8/31/2008 1:44 PM, Blogger Rebecca Wilder said...

According to the BEA, Q1 2008 profits in the petroleum and coal industry sank 31% since Q1 2007 (latest available data); hence shareholder profits sank, too.

The US government has a habit of taxing this industry (windfall tax act of 1980). Why not tax other industries, like the financial industry, who earned billions, no trillions, on securitized assets? That problem spilled out into the macroeconomy and was created within the industry - all the oil companies are doing is supplying a good that happens to be depleting - a.k.a., in shortage.

I agree with juandos, Baker's argument seems a bit unfounded.

 
At 8/31/2008 8:09 PM, Blogger juandos said...

Sadly if there should be any sort of windfall profits tax, it should be laid on Uncle Sam...

 

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