Sunday, March 9, 2014

Dividend Growth Investment Chevron

While my usual strategy is investing once a month, I decided not to wait for April and do the purchase in advance. A very good opportunity presented itself when Chevron (CVX) was trading at 115$  which was exactly my target price. As I mentioned before, I am quite bullish on oil and gas for the long term, and Chevron fits very well into this view. 


The advantages of Chevron are quite obvious: strong balance sheet, low debt, around 100% reserve replacement ratio, and a very impressive performance in the last decade, specially in the last 5 years. Chevron has the highest adjusted earnings per barrel-of-oil-equivalent (BOE)  in the industry at 17$. On top of that the management has been stable, and Chevron seems to have a strong focus on both selling a "good citizen" corporate image and positioning itself in the renewable energy sector, through its affiliate Chevron Energy Solutions. This focus is good for me as it works as a diversification to Exxon's image and focus on capital and Return on investment (ROI).

Chevron is facing some "difficult" times just like the rest of the oil & gas industry. They face the same challenge of having to employ very high CAPEX year-on-year to ensure sustainable profitability in the long-term. While they have a particularly high CAPEX that could become dangerous if it needed to be sustained, I believe Chevron reached an inflection point in 2013 where CAPEX peaked. According to the management, their CAPEX will now gradually decrease in years to come, and as huge projects that previously consumed very high initial investment come online, Chevron's free-cash-flow (FCF) will increase dramatically, thus sustaining healthy dividend increases.

For any dividend growth investor, this company is one of those companies that I love, high dividend yield, low payout ratio, and long track record of great dividend growth through both prosperity and recessions.

Stock Price: 58.16$
Dividend Yield: 4%
Dividend Raise Streak: 26 Years
Typical Yearly Dividend Growth (5yr): 9%

2 comments:

  1. CVX should be a winner in the long-term. I wouldn't mind it dipping back to the $111-112 level so I could add some more. The upcoming dividend increase should be a nice boost as well.

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    1. Hey Passive IncomePursuit,

      Completely agree! Specially since I'm just starting, I would be happy to see my holdings drop so I could add more shares. Would definitely love CVX to drop to 111$.

      Nice to see your progress, seeing the dividends you got each month of each year growing is pretty inspiring. I also saw that you are fluent with options, that is something I am completely clueless as of now, but look forward to learn when I have a bit more capital

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