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Stock Analysis of Chevron

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. This dividend champion has paid dividends since 1912 and increased distributions on its common stock for 26 years in a row.

The company’s last dividend increase was in April 2013 when the Board of Directors approved an 11.10% increase to $1/share. The strong dividend growth is an indication of management’s strong confidence of future cash flow generation. The company’s largest competitors include Exxon Mobil (XOM), British Petroleum (BP) and Royal Dutch (RDS.B).

Over the past decade this dividend growth stock has delivered an annualized total return of 16.30% to its shareholders.

The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen from 3.57/share in 2003 to $13.32 in 2012. Analysts estimates are for Chevron Corporation to earn $12.38 per share in 2013 and $12.46 per share in 2014.

The return on equity has closely followed the rise and fall in oil and natural gas prices. It rose between 2002 and 2007, then dipped in 2009, before rebounding strongly. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 9.60% per year over the past decade, which is lower than to the growth in EPS.

A 9% growth in distributions translates into the dividend payment doubling every eight years. If we look at historical data, going as far back as 1984 we see that Chevron Corporation has actually managed to double its dividend every ten years on average.

The dividend payout ratio has remained below 50% for the majority of the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Chevron Corporation is attractively valued at 9.40 times earnings, yields 3.20% and has an adequately covered dividend.

Full Disclosure: Long CVX and RDS.B

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