Chevron: A Dividend Stock for the Ages
June 08 2022 - 6:09AM
Finscreener.org
If there was ever a year to be
cautious for the equity investor, it is 2022. With rising inflation
and a recession around the corner, you want to look at companies
that have survived harsh conditions before. These are times when
dividend stocks come into play and Chevron
(NYSE:
CVX) is one such
company.
The energy giant is a dividend
aristocrat which means it has increased dividend payouts for the
last 25 consecutive years. Chevron has in fact increased dividends
every year for the last 35 years. Dividend aristocrats are expected
to have a market capitalization of at least $3 billion (Chevron is
valued at $355 billion as of June 7, 2022). Further, it offers
investors a forward dividend yield of 3.2%.
Chevron stock has performed well in 2022
Chevron stock has gained almost
49% in 2022 so far compared to the S&P 500 which has lost
14.34% in the same period.
When the company reported its
earnings for Q1 2022, it surprised both investors and analysts.
Earnings came in at $6.3 billion or $3.22 per share compared to
$1.4 billion or $0.72 per share in the corresponding period in
2021. Cash flow from operations was $8.1 billion in Q1 compared to
$4.2 billion in the year-ago period. Meanwhile, capital and
exploratory expenditures for the March quarter stood at $2.8
billion compared with $2.5 billion in Q1 of 2021.
Chevron has announced plans to
buy back $10 billion worth of stock in 2022 which is good news for
shareholders. Chevron has also said that it will buy back 25% of
its outstanding shares if Brent oil averages $75 a barrel for the
next five years.
The World Bank has said, “Because
of war-related trade and production disruptions, the price of Brent
crude oil is expected to average $100 a barrel in 2022, its highest
level since 2013 and an increase of more than 40% compared to 2021.
Prices are expected to moderate to $92 in 2023—well above the
five-year average of $60 a barrel.”
Chevron focuses on clean energy
While Chevron is raking in huge
profits thanks to the rising oil prices, it is also looking at
diversifying into other energy businesses. It has announced an
agreement to acquire Renewable Energy Group, accelerating its plans
in the renewable fuels business.
Its Q1 2022 press release said,
“The company also advanced its hydrogen, carbon capture and offsets
businesses with an agreement with Iwatani Corporation of America to
build 30 hydrogen fueling stations in California, an investment in
Carbon Clean, a global leader in cost-effective industrial carbon
capture, and an agreement with Restore the Earth Foundation, Inc.
on a carbon offsets reforestation project of up to 8,800 acres in
Louisiana.”
Both these moves are pertinent
when you take into account the company’s long-term view. Chevron
CEO Mike Wirth, at the BernsteinU+02019s Strategic Decisions
Conference earlier this month, said, “I personally don’t believe
there will be a new petroleum refinery ever built in this country
again.”
He gave this response when he was
asked about new capacity being added to the Gulf of Mexico. No oil
refinery has been built in the US since the 1970s. Clearly, Chevron
knows which way the government’s policy is leaning
toward.
From the looks of it, Chevron has
read the current situation well. If oil prices remain strong,
Chevron stock will continue to move up. And its long-term
investments in renewables and lower carbon fuels will help the
company grow in the future as well. When you look at all these
factors, it would be safe to assume that Chevron’s dividends are
not in any danger.
It also helps that Warren Buffett
has
increased his stake
in Chevron in 2022. Buffett has
owned Chevron stock since the second half of 2020, and now the
company comprises around 7% of his portfolio. Talk about a stamp of
approval from the Oracle of Omaha!
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