August 10, 1995
Chevron (110 shares... on their way to 125)
TYPE: Foolish Four Dow Dividend stock
Phone: (415) 894-7700
Closing prices, August 9th, 1996: Bid $57 3/4 Ask $57 7/8
Trailing 12-month revenues: $39.5 billion
Trailing 12-month EPS: $3.68
Last quarter reported: June, 1996 (FY: Dec)
Next quarter report date: October 24th
Consensus EPS estimate for quarter: $0.91e vs. $0.81
---->Trade: Buying 15 more shares (yeah, that's right), August 12th-16th
BALANCING OUR PORTFOLIO
It's baaaa-aaaack. As is generally the case, a Foolish Four or two carries over from one year to the next. Our 1996 switch is no exception. Chevron, the fifth largest oil company in the world with the Dow's fourth highest dividend, is it. (Last year, we invited Sears back.) Its present return (not including dividends) of 18% is adequate, though uninspiring. The stock now enjoys another year of playing ball in the Fool Dome, out to prove it's more than just a light-hitting utility infielder.
As we've provided ongoing past coverage of Chevron and will continue to do so going forward, we really have nothing new to say about the company in this report. I suppose it's helpful to remind the reader that the company did boost its dividend another 8% last week, and that revenues and earnings are in the midst of a fairly impressive advance following a strong second quarter report (net income for the first six months of the year is up 30% over 1995).
Oh yes, but let us explain why we're buying 15 more shares.
Our Foolish Four allocation for the Fool Portfolio is slated to be 30%, or $36,244 at the present value. One-fifth of that comes to $7,250, which is the amount we're buying of AT&T and 3M, and what we intend to hold in Chevron, as well. Our existing holding of CHV carries a present value of only $6,350. Thus, we're adding 15 shares -- approximately $900 -- to even it up.
Had the difference between current CHV value and intended CHV holding been closer -- say, inside of $300 -- we probably would've blown this off. While the Foolish Four approach dictates even amounts in three of the stocks (with double in the fourth), we're not pedants about it and you shouldn't be either. What it came down to was just a simple calculation. We looked at the amount we'll pay in commission (about $30), and took that as a percentage of the value of the new purchase ($900). That's 3.3%. Given that Foolish Four returns typically come in at a level in excess of 20%, we decided we didn't mind losing 3% off of that.
We encourage investors placed in situations similar to this to run the numbers on their own and, always Foolishly, make their own decisions. Obviously, if the commission ran to 10% or more, we'd suggest not doing it.
Here's to the Tengiz oil fields in '97!
--David Gardner, Fool HQ