- Chevron consistently outranked its DJIA peers in multiple valuation metric comparisons.
- Income investors have been highly rewarded with Chevron’s dividend yield and historical dividend growth.
- I am likely initializing a limit order to purchase shares of Chevron within the next 72 hours.
I am always on the lookout for investment opportunities like the ones I introduced in 4 Dividend Aristocrats You Should Consider Buying while continually trying to avoid purchasing overvalued companies like those I covered in 5 Dividend Aristocrats To Avoid Buying Right Now.
This article identifies the three Dow Jones Industrial Average ("DJIA") companies which appeared most often among top 20% of DJIA companies when looking individually at:
- percent above 52-week low;
- dividend yield;
- earnings payout ratio;
- price to earnings;
- price to sales; and
- price to book;
Wikipedia was used to obtain the list of companies classified as a DJIA component. All metric and trading data was obtained from Yahoo! Finance. For each metric listed above the companies were sorted by their respective metric value from least to greatest, except for dividend yield which was sorted from greatest to least. Each company was assigned an initial point value of zero. A point was then assigned to each of the top six companies for each metric and a point was subtracted from each company in the bottom six for each metric. This means a maximum of 6 points and a minimum of -6 points was possible. The distribution of cumulative points for all six metrics can be seen below in Chart 1 (which, yes, happens to be a perfectly-shaped bell curve) and a complete list of the DJIA companies analyzed is available in Table 1.
Chart 1. Cumulative Point Distribution
Table 1. The DJIA Companies Analyzed
American Express Company
The Boeing Company
Cisco Systems, Inc.
E. I. du Pont de Nemours and Company
The Walt Disney Company
General Electric Company
The Goldman Sachs Group, Inc.
The Home Depot, Inc.
International Business Machines Corporation
Johnson & Johnson
JPMorgan Chase & Co.
The Coca-Cola Company
Merck & Co. Inc.
The Procter & Gamble Company
The Travelers Companies, Inc.
UnitedHealth Group Incorporated
United Technologies Corp.
Verizon Communications Inc.
Wal-Mart Stores Inc.
Exxon Mobil Corporation
METRIC 1. PERCENT ABOVE 52-WEEK LOW
Percent above 52-week low values were sorted from least to greatest. The median percent above 52-week low of all companies was approximately 19.2%, while the median percent above 52-week low of the top companies was approximately 10.1%. This implies the companies in Chart 2 have up to approximately 9% upside potential should they converge to the overall median. Unfortunately for bargain hunters like myself, not a single one of the DJIA components currently trades below the midpoint between their respective 52-week high and low, which is something I am seeing more and more of across the entire market. This trend does not in and of itself imply an overvalued market, only a market that has risen across the board, but what goes up must come down! Buy low, sell high; not the other way around!
Chart 2. Top Companies By Percent Above 52-Week Low
METRIC 2. DIVIDEND YIELD
Dividend yield values were sorted from greatest to least. The median dividend yield of all companies was approximately 2.7%, while the median dividend yield of the top companies was approximately 3.4%. This means the companies in Chart 3 yield approximately 1.3 times as much as the median company, which would result in an additional $7,000 in dividends over a ten year period assuming an initial investment of $100,000 and no compounding.
Chart 3. Top Companies By Dividend Yield
METRIC 3. EARNINGS PAYOUT RATIO
Earnings payout ratio values were sorted from least to greatest. The median earnings payout ratio of all companies was approximately 44.6%, while the median earnings payout ratio of the top ten was approximately 20.9%. While both median earnings payout ratios are considerably low, the companies in Chart 4 could more than double their earnings payout ratio before converging to the overall median which could results in thousands of dollars in additional dividends down the road.
Chart 4. Top Companies By Earnings Payout Ratio
METRIC 4. PRICE TO EARNINGS
Price to earnings values were sorted from least to greatest. The median price to earnings of all companies was approximately 18.4, while the median price to earnings of the top companies was approximately 10.6. This means the median company is approximately 1.7 times more expensive by price to earnings than the companies in Chart 5.
Chart 5. Top Companies By Price To Earnings
METRIC 5. PRICE TO SALES
Price to sales values were sorted from least to greatest. The median price to sales of all companies was approximately 2.3, while the median price to sales of the top companies was approximately 1.1. This means the companies in Chart 6 are less than half as expensive by price to sales than the median company.
Chart 6. Top Companies By Price To Sales
METRIC 6. PRICE TO BOOK
Price to book values were sorted from least to greatest. The median price to book of all companies was approximately 3.4, while the median price to book value of the top companies was approximately 1.5. This means the companies in Chart 7 are less than half as expensive by price to book than the median company.
Chart 7. Top Companies By Price To Book
Only 12, or less than half, of the 30 companies managed to survive this analysis with at least one total cumulative point. The distribution of cumulative points for all six metrics can be seen in Chart 1 above and Table 2 below.
Table 2. Cumulative Point Distribution
The three DJIA companies that cumulatively outranked the other 30 are as follows:
- 4 points: CVX - Chevron Corporation;
- 3 points: T - AT&T, Inc.; and
- 3 points: TRV - The Travelers Companies, Inc.
Chevron is a Dividend Aristocrat which has increased its dividend since 1986. Based on the 7% increase per quarterly dividend effectuated in May 2014 from $1 to $1.07 Chevron is on track to pay an annual dividend in 2014 of $4.21. Over the last ten years Chevron has increased its annual dividend 10.7% compounded annually from $1.53 in 2004 to the estimated payment of $4.21 in 2014 for a total increase of over 275%.
Over the same time period, 2004 to 2014, one barrel of Brent crude oil has increased from $31.18 to $111.87, which is nearly a 359% total increase, or approximately 13.6% compounded annually. Many pundits today are touting that "$100 oil is here to stay." Higher cost oil is both good and bad for Chevron: good, because it is a product they sell, and bad, because higher cost oil reflects to some degree increased acquisition costs Chevron must incur to obtain its raw material(s).
Many income investors need little more information than a company is 1) a Dividend Aristocrat and 2) likely to have a thriving business in decades to come. Chevron certainly appears to fit the bill. Are you enjoying driving around in your air conditioned car blasting your stereo? Yes. Do trucks, planes, trains and ships still need crude oil and co-products to operate. Yes. Will developing countries, nations and continents consume an increasing amount of crude oil and co-products? Yes. Will renewable energy replace crude oil in the next 10, 20 or even 30 years? No.
The only thing I am disappointed about regarding a purchase in Chevron today is its current price compared to its historical price even during just 2014. I could have purchase Chevron for less than $115 a share earlier this year! Based on Chevron's brand and the company's continued top appearance in my research results I am very close to initiating a long position in CVX.
Think I should not purchase shares of Chevron at today's prices or a competitor is a better buy? Comment below!