Recent Sell – Chevron Corp

Chevron Small

Another week and another sale. I cant remember when I had back-to-back sales in my portfolio. Like I’ve mentioned in the past, I normally do not like to sell and prefer holding shares forever. But sometimes you just have to face the reality and pull the trigger on some companies.

Yesterday, I decided to sell and close our position in Chevron Corp (CVX). Chevron is still one of the largest oil & gas companies in the world and own immense assets across the world. But as oil prices have collapsed and have stayed depressed for almost two years now, the low prices have resulted in the company taking some eyebrow-raising moves. First, Chevron resorted to cutting its buyback program (I’ve always remained critical of stock buybacks. Companies, no different than retail traders driven by emotion, buy when stock is expensive and terminate such programs when the stock is cheap) and more recently has resorted all sorts of financial engineering to prop up its books.

More importantly, the company has resorted to selling quality assets across the world. Chevron is an integrated oil company with both upstream and downstream projects — and what surprises me is that they are selling more of their downstream business segments (which are more profitable in a depressed oil market) while hanging onto more upstream projects (they are also selling some upstream projects as well btw). Chevron is turning into more of a exploration & production (E&P) company, which is something that I am not interested in owning. The business is changing significantly on a weekly basis as the fire sales are completed in order to generate some cash to pay dividends to shareholders.

I think the dividends are still safe for now. I reviewed their dividends safety recently in this article. But the combination of debt load, upcoming debt payments, state of balance sheet and income statements and the fact that they are liquidating good quality assets all in the name of paying dividends is something that I do not care to own as an investor.

Another factor has been the changing landscape of the energy sector.

With Chevron, I see increased risk with little reward in owning this stock and have decided to quit our position. My overall profit/loss has been negligible considering the dividends payments over the past few years of owning this stock, so atleast I didnt lose money 🙂

What are your thoughts on this sale? Do you agree or disagree? Share your thoughts below.

Update: Bryan from Income Surfer posted this article on Seeking Alpha last night, which highlights all the aspects of Chevron that has driven me away from this company. Be sure to check it out.

41 thoughts on “Recent Sell – Chevron Corp

  1. Thanks for mentioning my article R2R. I’m with you, and sold my stake about 5% ago. I really think the company’s management is going in the wrong direction.

    I hope your week is going well buddy.
    -Bryan

    • You are welcome, Bryan. Good analysis and reiterates what we’ve been talking about for the last few weeks. After sitting on this for a long time, i decided it was time to quit. Im happy to have waited until its past $100 to sell and didnt sell when it was $70. Like we talked, I still cant figure out what it driving the stock price all teh way from $70 to $100 while oil remains so low and Chevron continues to shed good downstream assets. Its madness!

      R2R

  2. I hear you on a lot of your arguments, though I’m remaining bullish on CVX. If there is any company which are to survive this falling streak, I believe it’s Chevron. The current management is sure questioned, the numbers aren’t looking very bright and the oil market is not very hip a the moment. BUT, I’m not seeing CVX loosing any market positions to any competitors which is why I will hang on.

    I enjoyed reading you reasoning!
    – mraitn

    • Most of the market seems to think along the same lines as you, Martin. I have been thinking a lot about Chevron lately and cant seem to figure out what is driving the share prices up day after day. At the end of the day, I am simply not comfortable with where my money is invested and how the company is behaving. Now that I am out of the position, I can relax and watch from the sidelines. This will allow me to sleep well at night 🙂

      Best wishes with your investment
      R2R

  3. Thanks for sharing Sabeel. I don’t blame you and when the company changes.. we change our mind right? I still own a 10k position and will hold on for the time being because I’m in the green… up by 5 percent. I’ll give them a chance and see where this goes… LOL.
    Keep up the good work buddy.

    • Good for you, buddy. For now, Chevron seems to be surviving by selling all the assets and Im sure they will meet the dividend targets this year. But overall, I am not happy with where the company is headed. Sell it is. Now I can sit back and watch from the sidelines.

      R2R

  4. I do think you picked a fairly good time to get out given the recent price climb. For me, I think it’s a bit premature – but I probably hold too long. In my analysis, CVX should be able to maintain its dividend and outlast low oil prices (depending how long that takes). We shall see.

    • I am terrible at market timing. This was not meant to be a market timing move whatsoever. I was simply not comfortable owning this company and decided to cut lose.
      Chevron still has some good assets – I like that they have been massively investing to expand their gas exposure, and thats where the world is headed…oil consumption will start declining if not now, then in 5 years. But even with the gas investments – such as the Gorgon project, they have had immense cost overruns. But as I said, the original reason for buying was the fact that it was an integrated oil & gas company and as the company becomes more E&P focused, its something that I do not find comfort in.

      R2R

  5. It is good that you did not sell when CVX was in the 70s or 80s – it is at $102. And it is very likely that it would lose its status as a dividend champion.

    That being said, I have found that when I sold something to buy something else I have regretted it in most of the situations. I have found that there are often “reasons” to sell, which trick our minds into selling too early and making a mistake. So I am holding on to CVX, as long as the dividend is not cut.

    Best Regards,

    DGI

    • Im glad that I stayed patient until the stock was back above $100 too 🙂
      For now, it seems like Chevron will be able to keep paying those dividends – esp with all those assets sales. But another important to keep in mind is that they have some massive amounts of debt payments coming up in the next few years. If oil doesnt recover, Chevron will need to start selling more to meet those obligations. They could of course roll it, but their rating recently got downgraded, so their borrowing cost will be higher, Im sure.

      R2R

  6. I don’t blame you but I’m not quite ready to pull the trigger myself. Earlier this month I exited their DRIP, moved the shares to my broker, and plan on adding to my TRP & VLO positions with the CVX dividends.

    C

  7. Sabeel,

    Great exit point. Like you mentioned, it’s almost impossible to time these things, but if your thesis has changed and you have an attractive exit available to you, to me it makes perfect sense to get out while the going is good.

    • I think you said it well – you can never catch the top 10% and the bottom 10%. Its the rest of the ride that you need to hop onto. Whatever Chevron is upto, I have ridden it for a few years and this is where I get off .

      Thanks for stopping by and commenting
      R2R

  8. I wasn’t watching CVX lately so I do not know the background of all this. I only question a thing how could a company with 30 years of consecutive dividend increase go suddenly bad to no longer qualify as a champion. Of course, many things can happen but if they survived crisis in the last 30 years, what makes you think they will not sustain this one?
    If you are right in your assessment (and I think you are not when looking at the whole picture from another 25 years in the future), then this is another case to me to use options strategies to boost the stock holdings in my portfolio – lowering cost basis by selling covered calls and purchasing stocks via put selling.
    Good luck to you.

    • Hi Martin,
      Chevron has been suffering for a while now. The collapse in oil prices for the past two years has resulted in Chevron losing money quarter after quarter. Chevron does not make a lot of profits when the oil prices are this low. Oil prices need to be well north of $45-$50 per barrel for Chevron to make any profits. To combat this, Chevron has had to resort to selling assets in order to cover the dividends. This is not something that happened overnight. Its been over two years in the making.

      About the future of oil and the direction the world and company is headed, we have differing viewpoints. I am not bullish on the sector.

      cheers
      R2R

  9. IH says:

    Thanks for sharing this. I’ve been thinking of selling off 50% of my Chevron shares. Now that the stock price has recovered a bit, I could sell for a profit. I’m still debating my decision.

  10. I have contemplated doing the same. I started buying CVX about 3 years ago, though I bought much of it at too high a price (he says with head hanging low). I’m thankful for the price recovery, though I’m still showing a 8% paper loss. With dividends of the last couple years, I’m guessing I’m about even.

    I’m willing to give management the benefit of the doubt on continuation of the dividend (for now). Equally concerning, if not more so, is dividend growth. Even if oil prices shoot up (unlikely), CVX will have some fiscal ground to make up. I’m concerned about the lack of significant dividend growth for the foreseeable future. Add to that the fact that I’m also too heavy in energy, I will be watching for an opportunity to move my CVX funds elsewhere.

    • You addressed some good points there, Steve. Chevron can probably barely cover the dividends. They can even raise it by a $0.01 this year just to keep that Dividend Champion bragging right going. But will the company be able to make profits like it did back in the day and aggressively grow those dividends? I certainly dont think so. If oil shoots back up to $100, then the good ol days will return to upstream companies, but I dont think we will be seeing that (if oil shoot ups, the N.American producers will start drilling again, bringing more supply — pushing the prices down again).

      Looking forward to see if you pull the trigger and see where you invest it.

      Best
      R2R

  11. We have a very small position in CVX, and probably won’t sell it for all the reasons that have been outlined in these and other comments. Give management the benefit of the doubt…it’s tough to give up on such a strong history…if anyone will survive this downturn it’s a company like CVX…etc etc.

    But I completely agree with you that it’s a relatively high risk for a limited reward. If we had any larger of a position, I would be trimming it on this recent rally.

    I guess the dividend is “safe” depending on what your definition of “safe” is. It’s safe in the sense that they can probably come up with the cash to pay it at the current rate (or close to it…as you’ve suggested they could wait to raise the dividend by $0.01 at the end of the year and still technically maintain their “champion” status). But it’ll likely take a combination of asset sales, slashed capex spending and issuing debt to do that.

    Why? Just to keep a streak alive? They bought back stock at record highs and now they’re unloading high quality assets at the depths of the downturn? Buying high and selling low is not the preferred strategy.

    As someone who’s willing to “give management the benefit of the doubt”, I’d like to think that they’re seriously considering a dividend cut. If the dividend isn’t in the cross hairs, it probably ought to be. In that sense, I would argue, it’s far from “safe”.

    • I concur in the point that you make on what it means by “safe”…even raising a token $0.01 if they do – is quite meaningless and they might just be doing that to maintain bragging right.

      In market conditions such as these, I expect sane management decisions to persist and not sell higher margin segments (downstream) — esp when the current economic outlook predicts oil prices to stay depressed for an extended period of time. The rules of the game have changed and disruption has arrived with the technological development in solar/wind/other pv tech. Given all these scenarios, betting on a management team and given them benefit of doubt with my hard earned cash is something I am unwilling to do.

      Thanks for stopping by and sharing your viewpoint. Always interested to hear arguments for and against each topic.

      cheers
      R2R

  12. Hey Sabeel,

    I completely support your decision.

    For Chevron to sell profitable assets, at low prices is completely destroying shareholder value. It’s times like this that they should be BUYING not selling. Its dividend record is now acting as a noose around its neck, trying vainly to keep increasing the dividend (which considering how small the increases will be, it is essentially maintaining). Chevron needs to be holding onto its cash in times like this. Instead they’re destroying their future revenue IF the price ever recovers.

    There is so much oversupply (Iran) AND extra supply waiting in the wings (shale) that the price will never return to what it was.

    With how much interest there is in the new Tesla car, is demand really going to increase? Do you think Saudi Arabia will want to let profit-seeking companies to sell at prices that allow them to stick around?

    In this individual case, past performance is definitely not an indicator that Chevron can pay increasing dividends for the next 30 years. A long dividend record doesn’t mean it will have a long dividend future..

    I commend you for your choice. Definitely the right call 🙂

    Tristan

    • I think you hit it on the head and well put. In these conditions, they should be buying more assets at fire sale prices, not sell quality assets in order to keep shareholders happy. I’d rather they cut the dividends and accept the pain now and develop their channels properly going forward. But when management takes such steps, it sends me running for the hills.

      R2R

  13. From reading the articles and articles, I looks like the right call to make. Would management have a too short term focus?

    It is not a stock I have. I do have some oil related stock. The question I have about these is the movement to green energy and the impact it might have on their model.

    • These are the kind of problems you can avoid when you pick broad index-based funds for your investing needs, as you do. Individual company missteps should be identified early on when investing in stocks.

      R2R

    • Thanks Lanny. Its not a popular opinion, but when you cant sleep well at night with your investments, its time to cut such companies lose.

      Hope you are having a great weekend
      R2R

  14. Hi RM2R,

    I agree with you that some of the decisions can be frowned upon. Selling assets that are the most profitable part of the company is never a good idea. If I would own Chevron I would make the same decision.

    Kisses,
    Mrs. Moneypenny

    • Selling a dividend growth stock is never a popular opinion…but considering that the company is changing by selling assets and shrinking itself, I am happy selling here and exiting the position.

      Thanks for stopping by and sharing your thoughts
      R2R

  15. I guess the ‘sells’ keep piling up in the energy sector. I can’t blame you. With the recent run up in oil prices it looks like a good time to lighten up in the sector for those portfolios that are too heavy in it. That post from IS also helps shed some light going forward with CVX and the energy landscape. I’m glad I avoided the sector as a whole but I still feel that at the right prices some good near term cap. appreciation can be made. TOT still looks strong, and even BP at the right price (under $30) can yield some good results. All about the timing right? Thanks for sharing.

    • Cant help it but sell the position — a company selling its strong assets and shrinking in order to pay dividends is not something I care to own for the long haul.
      You are right – oil may recover and will probably be ok for the medium term. Theres def money to be made if you have the stomach for it. I have never been a good market timer, and usually tend to trade stocks

      R2R

  16. I just asked “why you sold Chevron Corp” in the income report and minutes later found this article.

    I don’t know anything about Chevron Corp beside they are into energy sector but I’ve done some extensive research lately in economic and market cycles, discovering something interesting.

    We are at the low for energy and commodity cycle, in fact the price of oil went down for 1.5 years to a low price of US$ 28 in January 2016. Consider the historic lowest oil price inflation adjusted was around US$ 20, we were close.

    Commodities did eve better (or should I say “horrible”). Commodities prices are sinking for the last 5 years.

    So, owning good companies or ETFs in these markets is a no-brainer considering the potential upside for the the next 10 years. We need oil to produce energy and moving cars (sorry Testla, you still have a long way to go) and we need steel and other materials to build the world.

    My 2 cents

    Rudy

    • Hi Rudy,
      Owning and buying good companies while they are low are a no-brainer indeed. But Chevron’s business model has changed a lot since I originally invested and it does fit my risk-reward profile. Hence the sale — there are still some good energy stocks out there that can be a terrific buys at these levels, but my overall diversification shows slightly higher weighting in energy – so, Im going to hold off investing more here and look for other sectors instead.

      Thanks for stopping by and sharing your point of view. Appreciate it.
      R2R

  17. I dont have a big position ,just small one and currently its in Gain,i am going to keep it like that .I see your logic ,i am not that heavy in energy sector also.

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