E Chevron Will Be Offering At Least A 4.5% Dividend Yield From Next Month

Since early October, the price of oil has plunged almost 40%, from $75 to $46, while S&P has lost 17% and is thus on the brink of ending an almost decade-long bull market. This turmoil has not left Chevron (CVX) unaffected and hence the oil major has shed 18% over this period. As a result, its dividend yield has climbed to 4.3% while the company is also expected to raise its dividend next month. As Chevron is an exceptional mega cap stock and a dividend aristocrat, income-oriented investors should closely monitor the stock in order to initiate a position at an attractive dividend yield.

Business Overview

The greatest problem of Chevron was its inability to grow its production volume for a whole decade. The oil major spent enormous amounts on growth projects, particularly in the years 2012-2014, when oil was trading around $100 and the company spent more than $30 B per year. As all those capital expenses did not result in production growth until last year, most investors were disappointed.

However, it is critical to realize that many growth projects take several years from inception to materialization in the oil sector. This has proved to be the case for Chevron. After several years of stagnant output, the past projects have helped Chevron grow its production by 6% this year. In addition, management expects 2%-3% annual production growth until at least 2022. Even better, Chevron has drastically reduced its capital expenses, from $40 B in 2014 to $18 B this year, and expects to maintain these expenses around their current level in the upcoming years. To cut a long story short, the oil giant is growing its production even though it is spending about half of what it used to spend on growth projects.

Chevron has also remarkably improved the profile of its reserves since the downturn of the oil market began, in 2014. The company has divested low-margin barrels while it has invested in low-cost reserves. As a result, it has reduced its production cost from $18 per barrel in 2014 to about $10 per barrel this year and has reduced its breakeven point to $50 per barrel.

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Moon Kil Woong 1 year ago Contributor's comment

When oil prices fall Exxon is the one to buy not Chevron. Chevron just finished spending a lot of money increasing its oil production not processing. Exxon increased its processing and the analysts laughed at Exxon. We will see who laughs last. As oil drops Exxon's processing margins soar. The good news is Chevron at least stopped expanding, however, there is no guarantee they won't try to expand again. And no, they don't raise capital to expand. They tend to just load up on more and more debt.