Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. This dividend champion has paid dividends since 1912 and increased distributions on its common stock for 26 years in a row.
The company’s last dividend increase was in April 2013 when the Board of Directors approved an 11.10% increase to $1/share. The strong dividend growth is an indication of management’s strong confidence of future cash flow generation. The company’s largest competitors include Exxon Mobil (XOM), British Petroleum (BP) and Royal Dutch (RDS.B).
Over the past decade this dividend growth stock has delivered an annualized total return of 16.30% to its shareholders.
The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen from 3.57/share in 2003 to $13.32 in 2012. Analysts estimates are for Chevron Corporation to earn $12.38 per share in 2013 and $12.46 per share in 2014.
The goal of Chevron is to fund its massive capital program, grow the dividend, return excess cash flows to shareholders, while preserving its financial strength.
New field developments are expected to generate 1% annual production growth through 2014 and then 4%- 5% for the next four years. Most of the capital spending on exploration and production would go into the Australia LNG, Gulf of Mexico and deepwater projects. Higher oil prices would also result in high earnings per share. Natural gas prices overseas have been more competitive overseas, in comparison to the US, which is a positive. While oil is easier to transport, natural gas is not. The company is working on acquiring and developing assets which would provide strong results in the future and also add to its reserves. Chevron is better positioned than peers, since it has a larger exposure to more lucrative oil fields, versus natural gas fields. The company has also managed to consistently replenish its production with new finds, and is on a massive capital spending quest to increase production significantly by 2017. Chevron’s recent acquisition of Atlas Energy is just one example of this strategy. The acquisition has provided Chevron with access to the Marcelus Shale. The company is also disposing of low margin assets like Refineries.
On the negative side, there is a court ruling in Ecuador against Chevron for a potential $19 billion. The likelihood of CVX having to pay this entire amount however is pretty slim to none however, as the company has no significant assets in Ecuador. Another potential dispute could occur in Brazil, related to a 2012 Frade Field leak there.
The return on equity has closely followed the rise and fall in oil and natural gas prices. It rose between 2002 and 2007, then dipped in 2009, before rebounding strongly. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 9.60% per year over the past decade, which is lower than to the growth in EPS.
A 9% growth in distributions translates into the dividend payment doubling every eight years. If we look at historical data, going as far back as 1984 we see that Chevron Corporation has actually managed to double its dividend every ten years on average.
The dividend payout ratio has remained below 50% for the majority of the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, Chevron Corporation is attractively valued at 9.40 times earnings, yields 3.20% and has an adequately covered dividend.
Full Disclosure: Long CVX and RDS.B
- Check Out the complete Archive of Articles
- My Entry Criteria for Dividend Stocks
- ConocoPhillips (COP) Dividend Stock Analysis
- Spring Cleaning My Dividend Portfolio
- Royal Dutch Shell – An Undiscovered Dividend Gem
One of my favorite quotes from Warren Buffett deals with an issue that many dividend investors face from time to time. The quote is” If you...
The price of oil has declined a lot since the summer of 2014. The West Texas Intermediate (WTI) in Cushing, Oklahoma has declined from a hig...
The stock market is finally having the correction everyone has been waiting for since 2012. In the past month, the S&P 500 is down by 7...
It is not a secret that stock prices have been rising for 6 - 7 years in a row now. This makes it easy to hold on to stocks, and believe tha...
I am often asked the following question in some variation: If I were starting a dividend portfolio today, and had a lump sum to put to work ...
As many of you know, I only invest my money in companies which pay dividends. I have made a lot of money that way , and I use dividends as a...
Note: I originally planned to post this article tomorrow, but in light of recent developments about Baxalta being in the process of being ta...
As someone who has been investing in, and writing about dividend paying companies for over seven years , I have accumulated a lot of observa...
I have been focusing on dividend growth investing for several years now. As such, I try to think about why it works, and also think about s...
As an investor my goal is to attain financial independence using my dividend growth strategy. As a dividend investor, my goal is to generat...