I added to my position in Chevron Corp (CVX). Being an oil & gas giant and a component of Dow Jones Industrial Average, Chevron is an integral part of the economy. The behemoth has a market cap of $222B and the recent drop in oil prices has made the stock extremely attractively valued.
Corporate Profile (from Yahoo! Finance)
Chevron Corporation, through its subsidiaries, is engaged in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and processing, transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids project. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals and fuel and lubricant additives, as well as plastics for industrial uses. Chevron Corporation is also involved in coal and molybdenum mining operations; cash management and debt financing activities; insurance operations; real estate activities; and energy services, and alternative fuels and technology businesses. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is headquartered in San Ramon, California.
Chevron’s revenue, earnings and free cash flow have all taken a hit with the recent downturn in the energy sector. Why the stock is currently trading at a P/E of 10.9 is pretty clear. I believe this this current hiccup is the perfect time for picking up shares in strong companies like Chevron.
Chevron pays an annual dividend of $4.28 and at current stock price levels, yields 3.7%. This is higher than the average 5-yr dividend yield of 3.3% and shows that the current levels are well below average. Chevron is a dividend champion having raised its dividends for 27 years consecutively. The 1/3/5/10-year dividend growth rates (DGR) stand at 11.1/11.2/9.0/10.6%. With a payout ratio of 40%, there’s still plenty of room for dividend raises in the future.
Recent Buy Decision
- Brand name: Chevron is a very strong brand name company to own for the long term. Any weakness in prices (such as currently experiencing) should be considered as buying opportunities.
- Valuation: With P/E of 10.9, above average yields, well below Graham Number ($138) the stock is a bargain.
- Circumstances: The recent downturn in energy prices are combination of strong US dollar, higher production and lack of geopolitical tensions. It will only take a change in one of those conditions to reverse that direction. Picking up high quality names during such periods is recommended.
- LNG: Chevron is investing heavily in the LNG business, which I believe has a bright future ahead. CVX is expected to spend 26% of its capex over the next three years on LNG.
- The continued depression of oil and energy prices could result in continued pressure on revenues and earnings.
- A strong US dollar will continue downward pressure on both oil and stock price.
Summary of the stock
- Symbol: CVX
- Quote: $114.73
- 52-week range: $109.27 – $135.10
- P/E: 10.95
- Forward P/E: 10.52
- Debt-to-Equity: 0.15
- Yield: 3.73
- 5-yr DGR: 9.0%
- 10-yr DGR: 10.6%
- Book value: $80.88
- Graham Number: $138.10
- Chowder Rule: 12.6
Do you own Chevron? What are your thoughts on the company and the stock prices at these levels? Share your thoughts below.
Full Disclosure: Long CVX. My full list of holding is available here.