Will Chevron's Dividend Keep Climbing?

Chevron (NYSE: CVX  ) is one of the largest oil companies in the world, and it has a long track record of rewarding its shareholders with lucrative dividend payments. With a $1-per-share payout last quarter, Chevron has raised its dividends in each of the past 26 years. That places Chevron among an elite group of stocks known as the Dividend Aristocrats, each of which has made annual dividend increases for a quarter-century or longer.

With oil fetching more than $100 per barrel, Chevron has plenty of cash flow to return to its shareholders. But, even though the company's 3.4% dividend yield is impressive among U.S. stocks, and beats out ExxonMobil (NYSE: XOM  ) by a considerable margin, Chevron's yields aren't as high as U.S. rival ConocoPhillips (NYSE: COP  ) , and is quite a bit lower than international rivals BP (NYSE: BP  ) and Royal Dutch Shell (NYSE: RDS-A  ) . Let's take a look at what's driving Chevron's dividends, and what changes we're likely to see in the future from the oil giant.

Dividend Stats on Chevron

Current Quarterly Dividend Per Share

$1.00

Current Yield

3.4%

Number of Consecutive Years With Dividend Increases

26 years

Payout Ratio

30%

Last Increase

May 2013

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

Will Chevron keep gushing dividends?
Chevron has been treating investors well for years, combining dividends with impressive share-price appreciation. The stock hit new all-time highs earlier this year, and the ongoing strength in oil prices, and the beginnings of a recovery in natural-gas prices, promise the potential for further gains ahead.

The big issue that Chevron, Exxon, and all of their Big Oil peers face, though, is finding new avenues for production that can replace played-out and aging existing assets. Despite success industrywide in reaping secondary, and even tertiary, production from depleted wells using new technology, Chevron has to work hard to acquire new assets for development. In seeking out new opportunities, Chevron finds itself exposed to the dangers of international expansion. In particular, it shares safety and theft concerns in Nigeria with Shell and other producers there, and, like BP did with the Gulf oil disaster, Chevron has had to deal with legal disputes following oil spills. Other environmental issues in Brazil and Ecuador posed threats to profits before reaching favorable resolutions.

One potential growth outlet for Chevron and its peers is the rise in interest for liquefied natural gas. As gas supplies rise in certain locations, the demand for infrastructure to help transport that gas over long distances is strengthening. Chevron, in particular, has its hand in multiple LNG projects, including its Gorgon and Wheatstone LNG projects in Australia, a 50% stake in the proposed Kitimat LNG terminal in British Columbia, and various projects in Africa. Exxon is also looking to LNG as a potential growth driver, but Chevron's strength in the area could serve it well if large price disparities across global markets persist.

Still, growth is far from a certainty for Chevron. LNG might not prove as lucrative as some hope, especially if unconventional production methods prove successful throughout the world. The key to LNG profitability is a lack of locally available natural gas, and Chevron has been prudent about wanting to get firm commitments from partners before moving forward with major projects.

CVX Dividend Chart

Chevron dividend data by YCharts.

As you can see, Chevron has accelerated its dividend growth in recent years, with its latest boost of more than 11% marking its second straight double-digit percentage annual jump. That's helped keep the company's yield ahead of Exxon, and has allowed Chevron to make progress in catching up with BP and Shell, especially as BP has had to recover from its spill-related dividend cut.

When will Chevron boost its payout?
With the company just having boosted its payout back in May, investors shouldn't expect another boost until next year. A jump to $1.10 per share quarterly wouldn't be unreasonable, especially given the company's low current 30% payout ratio. As long as oil prices remain high, cash flows should be ample to provide for double-digit percentage increases, and Chevron should retain its Dividend Aristocrat status well into the future.,

Find the best dividend stocks in the market
Dividend stocks can make you rich. It's as simple as that. Chevron isn't the only company that has provided rock-solid dividends for decades. The Motley Fool recently drew up a list of nine other dividend stocks with solid payout prospects, and they put it into a free report for your reading pleasure. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Click here to add Chevron to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2675238, ~/Articles/ArticleHandler.aspx, 9/21/2014 10:40:08 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement