Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Valued at a market cap of $55 billion, Imperial Oil pays shareholders a growing dividend yield of 2.4%. Is the TSX stock a good buy?

| More on:
A worker overlooks an oil refinery plant.

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of Imperial Oil (TSX:IMO) have risen 94% in the last 10 years. But if we adjust for dividend reinvestments, cumulative returns are closer to 142%, higher than the TSX index, which has returned 131% since November 2014.

Notably, Imperial Oil has outpaced the TSX over a 20-year period as well, rising 516%, while the broader market has gained 414%. As past returns don’t matter much for current and future investors, let’s see if this blue-chip TSX dividend stock should be part of your equity portfolio in 2025.

Created with Highcharts 11.4.3Imperial Oil PriceZoom1M3M6MYTD1Y5Y10YALL21 Nov 201420 Nov 2024Zoom ▾201520162017201820192020202120222023202420162016201820182020202020222022202420240www.fool.ca

Is Imperial Oil stock a good buy right now?

Valued at a market cap of $55 billion, Imperial Oil is among the largest energy stocks globally, engaged in the exploration, production, and sale of crude oil and natural gas in Canada. Despite lower commodity prices, Imperial Oil has showcased strong operational performance across business segments in 2024. In the third quarter (Q3) of 2024, its net income rose 10% sequentially due to record production in its Upstream business and a focus on cost efficiencies.

Imperial Oil reported earnings of $1.24 billion with an operating cash flow of $1.48 billion in Q3 of 2024, enabling it to offset a moderation in crude prices and refining margins. Its Upstream business reported a total production of 447,00 gross equivalent barrels per day in Q3 — the highest Q3 production over the past three decades.

The oil giant emphasized that its structural cost-reduction efforts and strategic volume growth helped drive unit cost savings of more than $3 a barrel year over year.

A growing dividend

COMPANYPRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Imperial Oil (1999)$11.5435$0.0625$27Quarterly
Imperial Oil (2024)$106.33435$0.60$261Quarterly

We have seen that reinvesting dividends has allowed shareholders to benefit from sizeable gains over time. One reason is due to Imperial Oil’s growing dividend payout. Today, Imperial Oil pays shareholders an annual dividend of $2.40 per share, which translates to a yield of 2.3%. These payouts have risen from $0.25 per share in November 1999, indicating a compound annual growth rate of 9.6% over 25 years, which is exceptional for a cyclical company.

In November 1999, Imperial Oil stock was priced at $11.5 per share. An investment of $5,000 in IMO stock 25 years ago would have let you buy 435 shares of the company, resulting in an annual dividend of roughly $109 over the next 12 months. Today, these 435 shares will pay you more than $1,040 in yearly dividends, enhancing your yield from 2.2% to 20% in this period.

Given an operating cash flow of $1.48 billion and capital expenditures of $486 million, Imperial Oil ended Q3 with a free cash flow of $1 billion. Comparatively, its dividend expense stood at $315 million, indicating a payout ratio of 32%, which is sustainable, even if oil prices drop significantly.

What is the target price for Imperial Oil stock?

In the last 12 months, Imperial Oil has reported a free cash flow of $3.6 billion and is forecast to end 2025 with a free cash flow of $4.5 billion. So, if the TSX stock is priced at 15 times trailing FCF, it will be valued at $67.5 billion in early 2026, indicating an upside potential of over 20% from current levels. After adjusting for dividend reinvestments, total returns will be over 27%.

Alternatively, Bay Street remains cautious and expects IMO stock to fall by 3% in the next 12 months.

Should you invest $1,000 in Diversified Royalty Corp. right now?

Before you buy stock in Diversified Royalty Corp., consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Diversified Royalty Corp. wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

canadian energy oil
Energy Stocks

How I’d Position $7,000 in This Canadian Energy Stock for 2025 Growth Potential

Tourmaline, Canada's low-cost and largest natural gas producer, is benefiting from strong industry fundamentals.

Read more »

nuclear power plant
Energy Stocks

1 Magnificent Canadian Stock Down 40% to Buy and Hold Forever

This energy stock may be down, but do not count it out if you're looking for long-term income.

Read more »

A plant grows from coins.
Energy Stocks

Where I’d Put $15,000 in Top Energy Stocks for Income and Appreciation

The recent pullback in energy stocks presents a compelling opportunity for long-term investors to generate capital gains and dividend income.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Top Energy Stocks to Invest in for 2025

Energy stocks are a solid choice for investors, but these could be the best option in 2025.

Read more »

Utility, wind power
Energy Stocks

Here’s How Many Shares of Northland Power Stock You Should Own to Get $5,000 in Annual Dividends

Looking for monthly income for now and the future? Consider this a top option.

Read more »

Investor wonders if it's safe to buy stocks now
Energy Stocks

Billionaires Might Sell U.S. Stocks and Buy This Canadian Stock to Avoid Tariff Risks

Billionaires might be worried about the future of U.S. stocks with the markets the way they are, and looking for…

Read more »

Offshore wind turbine farm at sunset
Energy Stocks

Got $500? Where I’d Invest it in This Green Energy Stock for Long-Term Sustainable Returns

This green energy company’s growing scale and focus on rewarding investors make it a top bet for investors looking for…

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

TC Energy: Buy, Sell, or Hold in 2025?

TC Energy is up 30% in the past year. Are more gains on the way?

Read more »