Exxon's Profit Fell Short. Its Dividend Didn't.

It generated a gusher of free cash flow, supporting its dividend and strengthening its financial foundation.

ExxonMobil (NYSE: XOM) recently reported its second-quarter earnings, which fell short of analysts' expectations. While the oil giant's adjusted earnings surged 67% to $14.7 billion, or $3.52 per share, analysts had anticipated $3.60 per share. That disappointment, along with lower oil prices, has weighed on the stock, pushing its dividend yield up to around 2.7%, more than double the S&P 500 's level (1%).

However, while ExxonMobil 's profits missed, its dividend certainly didn't. Here's why it remains a top dividend stock .

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Exxon's second-quarter earnings miss dominated the headlines. However, it didn't even come close to telling the whole story. The oil giant reported its highest upstream production in nearly two decades, excluding the impact of disruptions in the Middle East. It also reported record production in the Permian Basin and record diesel production. Meanwhile, it has now delivered a cumulative $16.2 billion in structural cost savings since 2019, more than all other international oil companies combined.

The oil giant's cash flow from operations surged from $8.7 billion in the first quarter to $23.6 billion, while its free cash flow ballooned to $17.2 billion. That free cash flow gusher allowed Exxon to return an industry-leading $9.4 billion to shareholders during the period, including $5.1 billion in share repurchases and $4.3 billion in dividends, the third-highest dividend payment among S&P 500 members.

Exxon's surplus cash after shareholder distributions enabled it to strengthen its already fortress-like balance sheet. The oil giant reduced its debt by $7 billion in the quarter, which lowered its net debt-to-capital ratio to an industry-leading 11%. That puts its dividend on an even firmer long-term foundation.

Exxon's second-quarter financial results might have fallen short of analysts' expectations. Its high-yielding dividend, on the other hand, grew stronger in the quarter. The oil giant should have plenty of fuel to continue growing its dividend, which it has done for an industry-leading 42 consecutive years. It's an ideal stock for investors seeking a sustainable and steadily rising income stream.