Despite Short-Term Struggles, Chevron Is a Great Pick for Patient Investors

Chevron's profits are still in decline, but once its major projects come online, its financial performance will reward your patience.

Jun 2, 2014 at 9:24AM

Integrated energy giant Chevron (NYSE:CVX) has had a difficult time over the past year. Disappointing returns from oil and gas projects, stagnating production, and shrinking margins on refined products have all combined to wallop the company's profits. This was a recurring theme across the integrated space and weighed on close rival ExxonMobil (NYSE:XOM) as well.

And yet, Chevron still has opportunities left in its pipeline. Despite these headwinds, Chevron still generates solid cash flow, is highly profitable, and rewards its shareholders with billions of dollars in share buybacks and dividends every quarter.

Going forward, Chevron's cash flow should continue to show resilience based on the company's future project portfolio. That's why, although the near term is likely to continue seeing bumps in the road, Chevron still has a lot to offer.

Steady as she goes
It's no secret the integrated majors are taking it on the chin. Chevron's earnings per share dropped 26% in the first quarter, year over year. For its part, ExxonMobil's profits fell by 4% in the first quarter, thanks in large part to capital expenditures being cut 28%. This followed a poor performance last year as well, when diluted earnings per share fell 24%.

Chevron has a long track record of returning lots of cash to investors. It has raised its dividend for 27 straight years. Its most recent increase was a 7% bump-up announced in April. ExxonMobil raised its own dividend as well at around the same time, by 10%.

Over the past decade, Chevron has increased its dividend by more than 10% compounded annually, according to the company. In addition, the company has delivered more than $40 billion in share repurchases over this time period. Maintaining this kind of streak is only possible with stable cash flow year after year. And Chevron is holding up this year, even in such a difficult operating environment.

First-quarter earnings clocked in $1.6 billion lower than the same quarter last year, due mostly to declines in upstream profits amid lower crude volumes and higher production expenses. However, Chevron still generated $4.5 billion in first-quarter earnings and $8.4 billion in cash flow from operations, which was more than enough to fund its commitments to shareholders. Chevron paid out $1.9 billion in dividends and bought back about $1.2 billion of its own stock last quarter, so it's got no trouble distributing lots of cash, even under some fairly challenging circumstances.

Major projects to fuel the future
Going forward, Chevron is hoping its upstream project lineup will get production going in the right direction once again. Of critical importance are the two massive liquefied natural gas facilities it's currently building in Australia.

They are known as Gorgon and Wheatstone and are reaching important construction milestones. The Gorgon project is 80% complete and recently had the final two gas turbine generators installed. Wheatstone is only 33% complete, but development drilling is underway.

By being positioned in Australia, these two projects are perfectly situated to service the emerging markets in Asia Pacific, where demand for LNG is rising rapidly.

Chevron also accelerated its deepwater activity. At its Jack and St. Malo sites, Chevron recently completed testing of flow lines and export pipelines. It's on budget and on track to ramp up in the fourth quarter of this year.

In addition, Chevron will continue investing in domestic onshore plays. Foremost is the Permian Basin, where Chevron plans to develop on the 120 wells drilled over the past year. It also has an active vertical program at the Midland portion.

Production to get a boost
Chevron needs to get its oil and gas production higher going forward because it's disappointed on production for many quarters now. That stands to change in future quarters as Chevron realizes the benefits of its many separate projects that should come online over the next year.

These projects should flow through and boost Chevron's bottom line, which will fuel future share buybacks and dividends that have made Chevron such a great stock to own for the past several years. For patient investors, Chevron should be a long-term winner.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information