Updated on April 17th, 2024 by Bob Ciura
Chevron Corporation (CVX) is one of the largest and most well-known energy stocks in the world. It is also one of the most stable dividend growth companies in the energy sector, having grown its dividend for 37 consecutive years.
As a result, Chevron is a member of the exclusive Dividend Aristocrats – a group of 68 elite dividend stocks with 25+ years of consecutive dividend increases.
We believe the Dividend Aristocrats are some of the highest-quality dividend stocks in the entire stock market. With this in mind, we created a full list of all 68 Dividend Aristocrats, along with important financial metrics such as dividend yields and P/E ratios.
You can download a copy of our full Dividend Aristocrats list by clicking on the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
Due to the industry’s reliance on high commodity prices for profitability, there are just two oil stocks on the list of Dividend Aristocrats – Chevron and Exxon Mobil (XOM).
Chevron’s dividend consistency and stability help it stand out in the otherwise-volatile energy industry. This article will analyze the intermediate-term investment prospects of Chevron.
Business Overview
Chevron is one of 6 integrated oil and gas super-majors, along with:
- BP (BP)
- Eni SpA (E)
- TotalEnergies (TTE)
- Exxon Mobil (XOM)
- Shell (SHEL)
Like the other integrated supermajors, Chevron engages in upstream oil and gas production, as well as downstream refining businesses. In 2023, Chevron generated 74% of its earnings from its upstream segment. Therefore, it is highly sensitive to the underlying commodity price.
Global oil demand has continued to steadily increase in the years since the coronavirus pandemic. Separately, oil and gas prices have been elevated due to the war in Ukraine and resulting sanctions on Russia. Before the sanctions, Russia was producing about 10% of global oil output and one-third of natural gas consumed in Europe.
The benefit from these exceptionally favorable conditions was evident in the performance of Chevron in 2022, although conditions softened in 2023 as prices of oil and gas have moderated off their peaks.
Still, Chevron is posting strong financial results. In early February, Chevron reported (2/2/24) earnings for the fourth quarter and full year.
Thanks to a slight improvement in the price of oil along with 7% production growth thanks to the acquisition of PDC Energy, earnings-per-share grew 13% sequentially, from $3.05 to $3.45, and exceeded the analysts’ consensus by $0.23.
Growth Prospects
Chevron is one of the largest publicly traded energy corporations in the world and stands to benefit tremendously from elevated prices of oil and gas.
Chevron invested heavily in growth projects for years but failed to grow its output for an entire decade, as oil projects take several years to start bearing fruit. However, Chevron is now in the positive phase of its investing cycle.
Chevron’s output grew 4% last year thanks to sustained growth in the Permian Basin and the acquisition of PDC Energy. The company has more than doubled the value of its assets in the Permian in the last five years thanks to new discoveries and technological advances.
Source: Investor Presentation
In addition, thanks to the high-grading of its asset portfolio, Chevron can fund its dividend even at an oil price of $40.
Another long-term growth catalyst is Chevron’s major acquisition. On October 23rd, 2023, Chevron agreed to Acquire Hess (HES) for $53 billion in an all-stock deal. Thanks to this deal, Chevron will purchase the highly profitable Stabroek block in Guyana and Bakken assets and thus it will greatly enhance its production and its free cash flow.
Nevertheless, given the nearly all-time high earnings-per-share expected this year, we expect an -8% average annual decrease of earnings-per-share over the next five years.
Competitive Advantages & Recession Performance
Chevron’s competitive advantage in the highly cyclical energy sector comes primarily from its size and financial strength. The company’s operational expertise allowed it to successfully navigate the 2020 coronavirus pandemic.
As a commodity producer, Chevron is vulnerable to any downturn in the price of oil, particularly given that it is the most leveraged oil major to the oil price. However, thanks to its strong balance sheet, the company is likely to endure the next downturn, just like it has done in all the previous downturns.
Chevron’s aggressive cost-cutting efforts have helped the company become more efficient. Chevron has continued to reduce drilling costs, significantly reducing its break-even expense.
Chevron stacks up well among its peers in the energy sector. However, the company is certainly not the most recession-resistant Dividend Aristocrat, as evidenced by its performance during the 2007-2009 financial crisis:
- 2007 adjusted earnings-per-share: $8.77
- 2008 adjusted earnings-per-share: $11.67 (33% increase)
- 2009 adjusted earnings-per-share: $5.24 (-55% decline)
- 2010 adjusted earnings-per-share: $9.48 (81% increase)
Chevron’s adjusted earnings per share declined by more than -50% during the 2007-2009 financial crisis, but the company did manage to remain profitable during a bear market that drove many of its competitors out of business.
This allowed Chevron to continue raising its dividend payment throughout the Great Recession. Chevron’s dividend safety is far above the average company in the energy sector.
Valuation & Expected Total Returns
Chevron’s expected total returns are more difficult to assess than many other companies. This is primarily due to the highly volatile results of the company, which result from the dramatic swings of the prices of oil and gas.
With a share price near $157, the price-to-earnings ratio presently sits at 12.6 times based on 2024 expected earnings of $12.50 per share.
If the stock were to revert to our fair value estimate of 14 times earnings, this would imply a 2.1% annualized valuation boost over the next five years.
Moreover, the stock is offering a 4.1% dividend yield. However, the valuation tailwind and the dividend are likely to be offset by the expected 8% average annual decline of earnings per share.
Overall, the stock could generate a -1.8% average annual return over the next five years off its nearly all-time high current stock price.
Final Thoughts
Chevron is one of the rare oil and gas companies that was able to navigate through the Great Recession of 2007-2009, the oil downturn of 2014-2016, and the COVID-19 pandemic without cutting its dividend.
As a result of Chevron’s lower cost structure, it can now handle a much lower average price of oil. Furthermore, new projects in the U.S. and international markets will help the company continue to grow.
Nevertheless, as we are near the peak of the cycle of the oil industry, which is infamous for its dramatic swings, Chevron should probably be avoided around its current stock price.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: