I’m intrigued by the possibility of earning $1,000 in annual dividends from energy giant Chevron Corp (CVX). With Chevron’s recent announcement that it would be raising its quarterly dividend to $0.81 per share, I thought it would be worth taking a look back at how rapid Chevron’s dividend has increased this past decade. In 2001, Chevron paid out $1.33 in annual dividends, and the recent $0.81 declaration now puts Chevron pace to pay out $3.24 on an annualized basis.
If an investor desired to eventually earn $1,000 in annual dividends from Chevron stock, I would be interested in finding out the most realistic path to getting there. Obviously, someone could just hunker down and buy 310 shares right now, which would throw off $1,004.40 in annual dividends, but based on yesterday’s closing price, that would require an initial investment of $28,520—not exactly an amount of money that everyone has lying around in dresser drawers.
So I would plan on using a combination of tools in the arsenal to get there—regularly monthly contributions and time. Looking at Chevron dating back to 2000, you could have invested in shares of the company at any time during that stretch and the dividend would have doubled within 6-8 years. That is statistically significant, I think—the longest you would have had to wait for your dividend to double was from the first quarter of 2001 to the first quarter of 2009. This makes sense—oil was trading in the teens and low twenties per barrel in 2001, and oil prices had been slashed in half during the global recession that hit America in 2008. Chevron barely earned enough to cover its dividend in 2001, and in 2002, the annual dividend payout was 2.5x greater than annual earnings, which stunted dividend growth during that time period. But in my own projections, I don’t see oil trading in the $50-$70 range for any meaningful time during the coming decade (and by meaningful amount of time, I’m talking years), so I don’t anticipate Chevron delivering the time of miniscule growth in dividend payments that investors experienced from 2001-2003. Based on my own calculations, I think it would be fair to think that Chevron could double its dividend every seven to eight years.
So if I wanted to earn $1,000 in annual dividends from Chevron within the decade, I would try to buy enough shares over a three year stretch to generate $500 annually in dividends, and then kick back and let the magic of dividend growth do its work while I focused on the next investment. If you figure Chevron will trade at an average price of $95 per share over the next three years, then you would need to purchase about 150 shares over a three year period to make this happen, or 50 shares per year. To do that, you would have to put aside $395 per month for the next three years, which is much more manageable than coming up with $28,520 all at once.
Think of it like this—for over $395 monthly investment that you make into Chevron, you would buy approximately 4.15 shares. That alone will pay you $13.45 in annual dividends. After three years of doing this, you would receive $500 in annual dividends in the mail without having to do anything more. That’s not bad—these calculations don’t assume reinvested dividends (if they did, you would be able to double your money a year or two sooner depending on the purchase price and the exact amount of the dividend growth), so you will be able to enjoy your growing stream of Chevron dividends along the way as the growth propels you towards $1,000. If you can find blue-chip American stocks with present dividend yield of 3-4% (for instance, Exxon (XOM) and IBM unfortunately wouldn't be able to qualify for this method since they have yields in the 1.5-2.5% range, which severely handicaps your potential to receive significant income even though both companies have been raising their dividends by over 10% for an extended period of time) that also have a track record of 7-11% annual dividend increases, then you can do quite well if you focus on putting aside a couple hundred dollars per month into the stock for a year or two before you turn the spigot off and watch ever-growing streams of dividends find their way to your mailbox every three months, hopefully for decades to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
