Chevron Corporation (CVX) Dividend Stock Analysis

This article originally appeared on The DIV-Net one week ago.

Chevron Corporation operates as an integrated energy company worldwide. Chevron Corporation is a component of the S&P 500 and Dow Jones Industrials Indexes. The company is also a dividend achiever, which has been consistently increasing its dividends for 21 consecutive years. From the end of 1998 up until December 2008 this dividend growth stock has delivered an annual average total return of 9.40% to its shareholders.

At the same time company has managed to deliver an impressive 25% average annual increase in its EPS since 1999. 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 could lead to lower earnings per share in 2009 to $4.70/share according to some analysts. After that expectations are for a recovery in earnings to at least $7/share.
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 2009 and 2010.

The ROE has consistently remained above 20% since 2003 after earlier volatility in this indicator in the early 2000s.

Annual dividends have increased by an average of 8.30% annually since 1999, which is lower than the growth in EPS. On the other hand however Chevron has been rewarding stockholders with share buybacks as well.
An 8 % growth in dividends translates into the dividend payment doubling almost every nine years. Since 1988 Chevron Corporation has actually managed to double its dividend payment almost every ten years on average.

The dividend payout has largely remained above 50% after 2003. Before that it did shoot up above 50% in 1999, 2000 and 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 5.60, yields 4.00% and has an adequately covered dividend payment. The forward P/E for 2009 earnings is close to 14. In comparison Exxon Mobil (XOM) trades at a P/E multiple of 8 and yields 2.40%, while British Petroleum (BP) trades at a P/E multiple 5 while yielding 8.40%.
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 CVX and XOM

Relevant Articles:

- XOM Dividend Analysis

- Why do I like The Dividend Achievers

- BP (BP) Stock Dividend Analysis

- Best Dividends Stocks for the Long Run

High-Yield Canadian Royalty Trusts vs Dividend Growth Stocks

Dividend growth stocks typically leave themselves some wiggle room in order to lessen the probability of a dividend cut due to earnings volatility. That’s why normal recessions don’t stop them from increasing distributions. They do pay out lower yields, but the dividend payments are stable, growing and you know that the cash, which the company generates, is also reinvested into the business. The balanced approach of rewarding shareholders while also growing the business is very appealing to income investors who are looking for an inflation proof form of dividend income. Investors who selectively purchase from the dividend aristocrats, dividend champions or dividend achievers lists are true visionaries who do not chase high current yield but look for stable, wide moat businesses which could generate enough earnings in order to support long term earnings and dividend growth in addition to expansion of the business. Nobody ever bought Wal-Mart (WMT) for its yield – yet it has been one of the best performing dividend growth stocks over the past 3 decades.

High Yield Canadian Royalty Trusts on the other hand pay all of their cashflows out as dividends. They grow by selling more units and diluting your stake. There is also some uncertainty about the tax structure of the income trusts after 2011. Currently there are imposed limits on the amount of units Canroys could sell in order to maintain their current status by 2011.

Many investors believe that CanRoys are the only solution that generates enough income for them to supplement Social Security. Actually you shouldn’t spend more than 4% of your portfolio every year. If you do, you are risking spending it all before you die, which is not a good solution for most retirees.

It’s great to receive a 12% yield on cost, but you have to ask yourself how sustainable is that payment? What if the dividend is cut by 50%? Then you are only making a 6% yield on cost. If you are a retiree who is living off their portfolio, spending up to 4% of your portfolio would leave some unused balances to be reinvested and provide some buffer in bad years. If you need an income trust yielding 20% in order to retire, then you don’t have enough money to stop working.

Dividend Growth investors tend to purchase the aristocrats and the achievers primarily for their smoothly growing dividend payments. Stock prices are volatile enough to stomach, thus a dependable and a growing stream of dividends is providing a safety cushion even during the worst bear markets over the past 70 years. If you also have volatility in dividends, then retirees can’t safely live off their investments.

An income investor should not concentrate only in the sectors, which are traditionally the best yielding ones. For example dividend investors have traditionally bought utilities and financials for their stable yields. The 2007-2009 financial crisis has pretty much left financials out of the income investor’s radar screen.
Canadian Income Trusts were very popular among income investors up until 2006 when Canada decided to gradually phase out the Income trust structure by 2011. Since then trusts have cut dividends across the board as their stock prices have collapsed.

Pengrowth Energy Trust (PGH), which engages in the acquisition, ownership, and operation of working interests and royalty interests in oil and natural gas properties in Canada, currently yields 15.80%. The current monthly distribution of $0.081/share is 63% lower than last year’s payment.

Penn West Energy Trust (PWE), which engages in acquiring, developing, exploiting, and holding interests in petroleum and natural gas properties and assets, yields 21% at the moment. The most recent monthly distribution of $0.187/share is 44% lower than last year’s payment.

Advantage Energy Trust (AAV), which operates as an oil and natural gas exploration and development company, has discontinued distributions according to its most recent March 20 press release.

Harvest Energy Trust (H T E), which engages in the exploitation and development of petroleum and natural gas properties in western Canada, has reduced its monthly distributions by 87% over the past year to $0.039/unit. The trust currently yields 11.50%.

The lesson to learn is not to put all your investments in one basket, such as one sector for example.

Remember the story of the tortoise and the hare – the slow and steady wins over time, not the hit or miss approach.

There are many dividend aristocrats whose dividends are safe and would be growing over the next several years. A sample list of dividend aristocrats, which have been growing payments for over 25 years include:

Mcdonald’s (MCD), which franchises and operates McDonald’s restaurants in the food service industry worldwide, has been a consistent dividend grower for 32 consecutive years, currently yielding 3.50%. (analysis)

Pepsi Co (PEP), which manufactures and sells various snacks, carbonated and non-carbonated beverages, and foods worldwide, has rewarded shareholders with dividend increases for 36 consecutive years. The stock currently yields 3.30% ( analysis)

Johnson & Johnson (JNJ), which engages in the research and development, manufacture, and sale of various products in the health care field, has increased dividends for 46 consecutive years. The stock currently yields 3.60%. (analysis)

Full Disclosure: Long JNJ, PEP, MCD and WMT

This article was included in the Carnival of Personal Finance: Birthdays Edition Weakonomi¢s

Relevant Articles:

- High yield Canadian Royalty Trusts
- Dividend Aristocrats List for 2009
- The Dividend Edge
- Yield on Cost Matters

Johnson & Johnson - a solid dividend aristocrat to own

Yet another notable dividend aristocrat raised its dividends last week following Procter and Gamble’s 10% dividend increase last week. This brings the total year to date dividend increases in the S&P dividend aristocrats index to 18, versus only 5 dividend cuts so far in 2009.

Johnson & Johnson (JNJ), which engages in the research and development, manufacture, and sale of various products in the health care field worldwide, announced a 6.50% boost in its quarterly dividend to $0.49 per share. Johnson & Johnson is a dividend aristocrat, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 47 consecutive years. The stock currently yields 3.60%. Check out my analysis of Johnson & Johnson (JNJ). I would consider adding on to my J&J stake as long as the stock is below $65.

Kellogg Company (K), which engages in the manufacture and marketing of ready-to-eat cereal and convenience foods., announced a 10% boost in its quarterly dividend to $0.375 per share, effective in the third quarter.. Kellogg Company is a former dividend aristocrat, which has fought back to regain its status of a dividend growth stock since 2005. The stock currently yields 3.50%.

The board of The J. M. Smucker Company (SJM), which engages in the manufacture and marketing of branded food products, has approved an increase in its quarterly dividend from $0.32 to $0.35 per share. The J. M. Smucker Company has rewarded its shareholders with an uninterrupted streak of increased dividends since 2002. The stock currently yields 3.60%.

Southern Company (SO), which operates as an energy company serving across the southeastern United States, announced a 4.20% raise in its quarterly dividend to $0.4375 per share. Southern Company has rewarded its shareholders with an uninterrupted streak of increased dividends for 7 consecutive years. The stock currently yields 5.90%.

Suburban Propane Partners, L.P. (SPH), a master limited partnership which engages in the distribution of propane, fuel oil, kerosene, diesel fuel, gasoline, and refined fuels, as well as marketing of natural gas and electricity in deregulated markets, announced boost in its quarterly distributions to $0.815 per unit. Suburban Propane Partners, L.P. has rewarded its unitholders with an uninterrupted streak of increased dividends since 1999. The units currently yield 8.80%.

Holly Energy Partners, L.P. (HEP), another master limited partnership which operates a system of refined product and crude oil pipelines, storage tanks, and distribution terminals primarily in west Texas, New Mexico, Utah, and Arizona, increased its quarterly distributions by 1.30% to $0.775 per share. Holly Energy Partners, L.P. has rewarded its unitholders with an uninterrupted streak of increased dividends for 5 consecutive years. The stock currently yields 12.10%.

Hudson City Bancorp (HCBK), which operates as the bank holding company for Hudson City Savings Bank that provides a range of retail banking services in the states of New Jersey, New York, and Connecticut, announced a 7.10% boost in its quarterly dividend to $0.15 per share. Hudson City Bancorp has rewarded its shareholders with an uninterrupted streak of increased dividends for 9 consecutive years. The stock currently yields 4.90%.

Cullen/Frost Bankers, Inc. (CFR), which provides various banking and financial products and services primarily in Texas, announced a 2.40% boost in its quarterly dividend to $0.43 per share. Cullen/Frost Bankers, Inc. is a dividend achiever, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 15 consecutive years. The stock currently yields 3.60%.

Full Disclosure: Long JNJ

Relevant Articles:

- Johnson & Johnson (JNJ) Dividend Stock Analysis
- Procter & Gamble (PG) – a reliable dividend aristocrat
- Dividend Stocks Raising Payments in a rising market
- Why do I like Dividend Aristocrats?
- Dividend Aristocrats List for 2009

10 Weekend Links

Sometimes I get 10 interesting links to share with my readers. This weekend i am continuing my linkfest with the following articles:

The Kirk Report outlined a list of "The World's Most Ethical Companies, which have outperformed the stock market since 2002.

Canadian Capitalist asked his readers about the books they love to read.

DividendsValue discussed the concept of International Income Investing. Make sure to check his analysis of McDonald's Corporation on Div-Net as well.

The Dividend Guy is analyzing the effect of Fixed Income on his Asset Allocation.

Dividend Tree analyzed Qualcomm.

Wide Moad Investing keeps analyzing Buffett's letters to shareholders. He is up to 1981 now. WMI has 28 more years to analyze.

It's not just Warren Buffett who likes the railways - The Money Gardener is bullish on canadian pacific.

Jae from Old School Value reminiscenses on his stock market experiences in How to Invest In the Stock Market-Background

Blogger Pinyo from Moolanomy has created a headlines aggregator called Great Nexus. Make sure to check it out.

Get Rich Slowly has an interesting post on Harry Browne’s Permanent Portfolio

Abbott Labs (ABT) Dividend Stock Analysis

Abbott Laboratories manufactures and sells health care products worldwide.
The companyis a component of the S&P 500 and is a dividend aristocrat, which has been consistently increasing its dividends for 37 consecutive years. Most recently Abbott raised its quarterly dividend payment by 11% to $0.40/share.

From the end of 1998 up until December 2008 this dividend growth stock has delivered an annual average total return of 3.80% to its shareholders.

At the same time company has managed to deliver an impressive 7.60% average annual increase in its EPS since 1999. Analysts are estimating an increase in EPS to $3.65 in 2009 and $4.10 by 2010.

The ROE has largely remained between 12% and 28% after falling from its 1999 highs over 34%.
Annual dividends have increased by an average of 8.80% annually since 1999, which is higher than the growth in EPS. A 9 % growth in dividends translates into the dividend payment doubling almost every eight years on average. Since 1986 Abbott Laboratories has actually managed to double its dividend payment almost every six years on average.

The dividend payout ratio has largely remained above 50% over the past decade, with spikes in 2001 and 2006 caused by lower earnings. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Abbott Laboratories is trading at a P/E of 14, yields 3.60% and has an adequately covered dividend payment. In comparison Bristol Myers Squibb (BMY) trades at a P/E multiple of 8 and yields 6.10%, while Johnson and Johnson (JNJ) trades at a P/E multiple 11 while yielding 3.50%.
I like the strong product pipeline of the company, as well as the potential for new launches. There could be some generic competition for some of Abbott’s products but overall the forecast for future revenue increases is quite rosy. The recent acquisition of Advanced Medical Optics exposes the company in the rapidly growing market for LASIK and Cataract procedures. I am considering initiating a position in Abbott on dips.

Full Disclosure: None

Relevant Articles:

- Johnson & Johnson (JNJ) Dividend Stock Analysis
- Dividend Aristocrats List for 2009

- United Technologies (UTX) Dividend Stock Analysis

- Dividend Aristocrats keep raising their dividends