Chevron (CVX), is the second largest U.S. energy company today. Unlike many of its competitors, including Marathon Oil (MRO), BP, and Exxon Mobil (XOM), Chevron just announced a dividend increase for the twenty fifth year in a row. Chevron just reported impressive fourth-quarter earnings. Chevron posted a record-breaking $7.25 billion in profit in the fourth quarter, which was an increase of over 41% year-over-year, based largely on streamlining refining operations.
What is little known to many investors is a report that is generated yearly by Standard & Poor's that should be a clear indicator to many investors as to what stocks to buy for the long term. The problem is that the report is published to very little fanfare. Many investors have never even heard of this report. Chevron made it into this report.
The report that Standard & Poor's publishes is called the S&P 500 Dividend Aristocrat Index. This index is a comprehensive look at the performance of those companies in the S&P 500 with a market value of no less than $3 billion.
This index measures the overall performance of these companies. One of the requirements for a company to make this index is that they must have not only paid dividends every year, for twenty-five years, but they had to have raised those dividends consistently for no less than twenty-five years as well.
Unbelievably, for 2013, only 54 companies in total made the list. That is only about 11% of all the companies listed in the S&P 500. Any company that can consistently raise dividends every year for twenty-five years is a company that an investor should seriously consider investing in.
How hard is it to make this list? Consider that every third week in January, the S&P releases this index to little fanfare and what is even more quietly reported are the companies that are dropped from the list. Take Pitney Bowes (PBI), for example. Despite the fact the Pitney Bowes increased its dividend payout last year, its reported earnings have been in steady decline. With little news, fanfare, or reporting they were summarily dismissed from the Aristocrat Index when its market cap failed to hit the required $3 billion; its actual reported market cap was only 2.7 billion, and that was just not good enough.
Currently, for Chevron, the core of its operations appears to be focused on production growth. Contrary to most of its competitors, Chevron is mostly ignoring the search for new reserves and is instead focused on the exploration and production of oil that it believes to be more cost-efficient and therefore, in turn more profitable.
This focus, by Chevron, on increased value as opposed to increased volume is going to further increase share growth. Current estimates, based on production costs, which continue to be streamlined, are that Chevron will post a further 20% increase over the next two years. Take into further consideration Chevrons spotless balance sheet and significant valuation.
Furthermore, Chevron is the sole owner of the Chevron Products company; this division of Chevron is the producer of the Delo brand of engine lubricants, coolants and oils. These products are technologically superior to anything else on the market today and will give Chevron clear market dominance in the future.
In a recently published case study, the Delo brands of product were used in a John Deere, 300 brake horsepower tractor, model 8520T. This tractor belonged to the J Marchini Farms company. The tractor was placed in operation over nine years ago and over that time period it accumulated over 10,000 hours of operation. In this case study the tractor was torn down and inspected. It is important to note that Marchini AG and not Chevron inspected the engine and tractor; Marchini AG found the engine components as well as the train system to be in perfect working order with signs of only minimal wear. In short, the Delo brand of products works; it works better than anything currently on the market.
As an added sales point, all of the Delo product line is covered under an exclusive warranty program that is unprecedented in that it covers a piece of equipment from "bumper-to-bumper" for any lubricant or coolant related failures.
The simple formula is this: the population of the world is increasing, placing higher and higher demands on agriculture. In order to feed the masses more and more land will need to be converted over to agricultural needs and that means a need for more and more agricultural equipment. This is turn, means more sales for Chevron. Look for upcoming quarterly reports to confirm this.
The EIA, or the Energy Information Administration, is a wealth of information for a savvy investor looking to make a play in the energy sector.
According to the EIA, the short-term energy outlook is reported to be about a 1 million barrel per day global demand growth for 2013 alone with an estimated 1.4 million barrels per day in global demand by 2014.
This report clearly shows that global daily consumption is on the rise and this comes as no surprise as emerging markets in India, China and even Africa are increasing the global middle class who demand more and more energy. As a result, there is no end in site for Chevron.
Then there is Chevron's clear dominance in shale natural gas production, with North America and Europe being the source countries of major shale gas production. This provides several key advantages to Chevron. The most important are stability and security. As a result, with the United States being the largest market for shale and the second largest market for cured oil the only major concern for Chevron at this point seems to be in transport. However, despite transport issues, Chevron still accounts for the majority of the shale market in the United States.
Chevron's shale operations lowered crude costs and increased processing margins by an incredible 46%. This bodes even further potential for Chevron as more and more chemical companies seem to be interested in returning to the U.S. based on this cheap natural gas.
Chevron is also poised to take advantage of its global position as well. Crude prices are rising in international markets and when you consider that approximately 75% of all of Chevron's oil is pumped from non-United States location wells, one can see how Chevron can profit from higher margins and lower transport costs.
Exxon is still the world's largest publicly traded petroleum company. In its latest reports, Exxon stated that it had replenished its reserves to approximately 115% of its total production output in the hopes that this will continue to project its commitment to shareholders for long-term company growth. However, in spite of increasing its reserves, Exxon continues to increase its stake in shale and heavy oil projects in both the United States and Canada; these ventures are requiring large amount of capital expenditure. Case in point, in the Kearl Oilsands Project of Canada alone Exxon spent over $10.9 billion. If any of these projects fail it could mean a big hit to Exxon's profitability and even if there is no failure, it will still take a couple of years to bring these projects online.
So what is left for BP? The company's future is entirely dependent on its ability to continue fueling future revenues. With massive sell offs, one begins to wonder what BP was planning, until one realized that BP is playing a risky game by increasing its stake in Rosneft, which is a state owned petroleum company. Many analysts claim that this was the deal of a lifetime. While the $38 billion in divestiture of non-performing assets strengthened BP's portfolio, it still remains to be seen as to whether or not this will assure BP's ability to explore new regions, increase its reserves, and provide shareholders the growth and profitability they expect. If this does not happen look for signs of a sell off.
Marathon, like Chevron, is one of the few oil and gas companies, which is predominantly focused on leveraging the opportunities found in playing shale. Currently the company is focused on the continued development of its Eagle Ford Shape operations as well as serious contemplation on divesting itself of many of its non-core assets. One key area of concern is the consideration, by Marathon, to expand its exploration and production operations to areas outside of the United States. While this may be a worthwhile endeavor, one cannot help but worry about security, stability and transport costs that are inherent in many foreign locations.
The Bottom Line
Chevron is in a great position to provide long-term capital gains to investors willing to wait. In the short-term, it will pay these same investors hefty dividends for holding on. Considering that Chevron is currently in a small retraction as prices continue to consolidate, now would be a good time to invest. Look for a breakout above its all time high of about $117.50 to confirm this growth trend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.