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Linked here is a detailed quantitative analysis of Chevron Corporation (CVX). Below are some highlights from the above linked analysis:
Company Description: Chevron Corporation is a global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
CVX is trading at a premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 9.1% discount to its calculated fair value of $170.79. CVX earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section, there are three possible Stars and three key metrics. See page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
CVX earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45% CVX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1912 and has increased its dividend payments for 38 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
CVX earned a Star in this section for its NPV MMA Diff. of $1,100. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CVX has. The stock's current yield of 4.4% exceeds the 3.75% estimated 20-year average MMA rate.
Peers: The company's peer group includes: BP plc (BP) with a 6.4% yield, Exxon Mobil Corporation (XOM) with a 3.7% yield, and ConocoPhillips (COP) with a 3.5% yield.
Conclusion: CVX earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section, and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks CVX as a 4-Star Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $198.71 before CVX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price, the stock would yield 3.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 2.3%. This dividend growth rate is below the 4.9% used in this analysis, thus providing a margin of safety. CVX has a risk rating of 1.25, which classifies it as a low-risk stock.
The company's free cash flow payout at 88% (up from 65%) is above my desired maximum of 60%. The stock is trading at a discount to my $170.79 calculated fair value. Given CVX's current metrics, I will consider adding to my position.
For PDF of detailed quantitative analysis, click here.
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