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Richard Robinson, Ph.D.
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Drawing upon more than a quarter century of experience teaching economics and finance at several prestigious colleges and universities, Richard now shares his vast wealth of knowledge with our readers. Richard is an expert in the field of risk management and reinsurance, and he’s guided more... More
  • Imminent Dividend Hike From Big Oil! 2 comments
    Apr 25, 2014 5:51 PM | about stocks: CVX, XOM


    Momentum trading is dangerous to your wealth.

    While buying momentum stocks can lead to rapid gains, it's just a matter of time before share prices become massively disconnected from underlying fundamentals.

    Once this occurs, the run-up can come to a screeching halt, causing "hot money" flows to quickly reverse as everyone races for the exits. The plunging stock price leaves retail investors with rapidly fading hopes of retirement.

    Don't fall for the siren song of quick profits and expose your hard-earned cash to the hazards of momentum trading.

    Instead, invest for the long term with time-tested techniques of identifying sound companies that consistently raise their dividends.

    Take Chevron (CVX), for example…

    Major Investments

    Chevron is the ninth-largest energy conglomerate in the world, and produces more than 3.5 million barrels of oil per day. This integrated oil and gas company capitalizes upon upstream exploration to acquire crude oil, as well as downstream productivity, to refine it into petroleum products.

    Chevron's scale is reflected in its enormous revenues of more than $220 billion and a net income of $21.4 billion.

    But this size comes with skepticism - many analysts are critical of Chevron for its 2013 capital expenditures of nearly $42 billion, up 115% since 2010.

    I think this view is shortsighted…

    It's true that Chevron's capex increased more than 22% year-over-year, but the reason Chevron has been around since 1879 is a direct result of its willingness to invest for the long term!

    In 2014, the company will invest $3.2 billion on upstream exploration, drilling more than 75 exploration and appraisal wells worldwide.

    And as our sister publication, Oil & Energy Daily, points out, companies that exploit natural gas opportunities will excel in the coming years.

    Chevron's massive Gorgon liquefied natural gas (NYSEMKT:LNG) project is more than 80% complete and is forecasted to start up in Q4 2014. Once on-line, this project will have an immediate impact on Chevron's top and bottom lines.

    Chevron's Wheatstone site should begin operations in Q1 2016. Once operational, this facility will have an annual capacity of 15 million metric tons of LNG - and secure Chevron as an industry leader in LNG liquefaction.

    This commitment to growing the company will continue to reward shareholders, but let's examine how much we'll have to pay for this growth…

    Major Value

    Chevron's stock trades with an attractive forward P/E ratio of 11.0x, a healthy discount to the S&P 500's average of 15.7x.

    CVX also has a P/B value of 1.6x, compared to 2.5x for the largest U.S. oil producer, Exxon-Mobil (XOM). CVX's P/CF is 6.6x, also better than XOM's P/CF of 8.5x.

    And CVX also comes out on top in one major category that matters a heck of a lot to dividend investors - yield.

    CVX pays a solid 3.2%, handily besting XOM's 2.5% dividend yield.

    Chevron has a 26-year history of increasing its dividend, and the chart below illustrates the 10.6% CAGR of its payout since 2004.

    Chevron will undoubtedly extend this streak to 27 consecutive years, with a dividend increase announcement due sometime over the next week or so. Considering that the company has more than $16.5 billion in cash on hand - and a payout ratio of 35% - another increase matching last year's 11% dividend hike isn't out of the question.

    It's entirely possible that many will chase the stock higher after the announcement, but in the serious arena of retirement investing, momentum trading is a fool's errand.

    Investing for the long term requires careful analysis of companies that are, themselves, focused on the long term and have sound fundamentals.

    Chevron meets both of these criteria.

    Just don't be surprised when this oil major raises its dividend… it's imminent!

    Safe (and high-yield) investing,

    Richard Robinson, Ph.D.

    Stocks: CVX, XOM
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Comments (2)
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  • frank paxman
    , contributor
    Comments (1698) | Send Message
    Nice take on CVX. My portfolio's about 7% energy. I'm looking to add quality, long-term energy holdings paying decent dividends. I've been watching CVX but haven't pulled the trigger.
    26 Apr 2014, 09:10 PM Reply Like
  • Richard Robinson, Ph.D.
    , contributor
    Comments (15) | Send Message
    Author’s reply » I appreciate the comments. Pulling the trigger is the hard part, especially with the recent increase in market volatility from exogenous risks. But CVX is certainly an excellent candidate for a long term play, and when their LNG projects fire up, their free cash flow will take them to new highs...
    28 Apr 2014, 09:26 AM Reply Like
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