Chevron Corporation: Dividend Stock Analysis

Chevron Corporation (CVX) operates as an integrated energy company worldwide. The company’s organized into several segments including Petroleum operations, chemical operations coal mining, power generation, insurance, and real estate activities.

Chevron is a dividend achiever as well as a component of the S&P 500 and Dow Jones Industrials indexes. It has been increasing its dividends for the past 20 consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 11.10 % to its shareholders. The stock has lost about four percent of its value so far in 2008.

At the same time company has managed to deliver a 27.00% average annual increase in its EPS since 1999, supported by the commodities bull market of the past decade.

 Annual dividend payments have increased over the past 10 years by an average of 7.10% annually, which is much lower than the growth in EPS. Using the rule of 72 a 7% growth in dividends translates into the dividend payment doubling almost every ten years. If we look at historical data, going as far back as 1988, CVX has indeed managed to double its dividend payment every ten years on average.

It’s interesting to note that both XOM and CVX have not kept pace with the EPS increases by raising their dividends accordingly. Instead those oil behemoths have decided to make stock buybacks, which are not as reliable as dividend payments over the long run. I think that CVX and XOM management probably have not increased dividends as fast as earnings because they consider the current commodities boom to be of short term nature.

If we invested $100,000 in CVX on December 31, 1998 we would have been able to purchase 2411 shares (Adjusted for a 2:1 stock split in 2004). In February 1999 your quarterly dividend income would have been $735. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2115 by August 2008. For a period of 10 years, your quarterly dividend income would have increased by 113%. If you reinvested it though, your quarterly dividend income would have increased by 188%.

The dividend payout has remained below 50% after 2003. Before that the payout had followed the wide fluctuations in earnings rising above 100% on several occasions. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

CVX does look attractively valued with its low price/earnings multiple of 9, low DPR as well as attractive yield at 3%. If I had to choose between XOM and CVX, the latter would be the obvious candidate for me. I will look forward to entering a position into this stock on dips.

Disclosure: Author does not own shares of CVX.

Comments

[tipalia:]

Dobromir,I always enjoy your articles, ty for sharing your analysis with us.
I presently own 100 shares 0f CVX and want to buy more.I need your help here I paid $ 79.50 for the first 100 what would be a good price for the next 300 I am looking to buy? Have a pleasant day and looking forward to your next big dividend player.

2008 Oct 02 12:03 PM

[JET1C:]

CVX and XOM just don't pay enough. I prefer something over 5% and there are lots of big name companies that pay that and much more.

Why get excited about <3%?

2008 Oct 02 12:24 PM

[tipalia:]

I believe that CVX has a yield >3% and your argument , jet1c , is only good if you look for an income stock. But to me this is first a growth stock that gives you a decent yield. And depending at what price it trades it might also be a value play , 3 for the price of one,isn t it?

2008 Oct 02 01:23 PM