Over the past decade this dividend stock has delivered an annual average total return of 10.30% to its shareholders.
At the same time company has managed to deliver a 3.10% average annual increase in its EPS since 2000. The increase in prices of crude oil and natural gas definitely helped with earnings. The rapid fall of energy prices in late 2008 and early 2009 and weak global demand led to a 55% decrease in earnings per share in 2009 to $5.24. For fiscal year 2010 analysts expect earnings to increase by 53% to $8/share. Analysts also expect earnings per share to rise 25% from there to $10/share by FY 2011.
Any analysis of earnings trends for an oil and gas producer such as Chevron would definitely depend of the future prices of energy commodities over the next few years. Nevertheless the dividend is sustainable at current levels and there definitely is some room for dividend growth in 2011 and beyond.
Returns on Equity decreased to 11.70% in 2009, after a few years of consistently being above 20%. Year over year this indicator will fluctuate, due to the changes in the value of oil and natural gas. The company should be able to generate sufficient average returns on equity in excess of 20% in the long run.
Annual dividend payments have increased by an average of 8.30% annually since 2000, which is higher than the growth in EPS. The reason for this is that earnings have a much higher volatility than dividend payments. In my analysis of Chevron from last year, the growth in earnings was much higher than the dividend growth.
An 8 % growth in dividends translates into the dividend payment doubling almost every nine years. Since 1989 Chevron Corporation has actually managed to double its dividend payment almost every ten years on average. The company recently raised its quarterly dividend by 5.90% to 72 cents/share.
The dividend payout ratio has followed the trend in earnings and returns on equity. It largely remained at or below 50% after 2003. Before that it did shoot up above 50% in 2000 and in 2002. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Chevron Corporation is trading at a P/E of 11.70, yields 3.70% and has an adequately covered dividend payment. The forward P/E for 2010 earnings is close to 10. In comparison Exxon Mobil (XOM) trades at a P/E multiple of 14.50 and yields 2.80%, while British Petroleum (BP) trades at a P/E multiple 8 while yielding 6.80%.I find Chevron attractively valued at current levels given its stable dividend growth history. If you are looking to add exposure to the energy sector for your dividend portfolio then CVX could just be the right stock for you.
Full Disclosure: Long BP, CVX and XOM