Chevron (CVX -0.50%) reported its fourth-quarter and full-year 2023 results on Feb. 2, and the stock popped 2.9% in response.

It was a monster year for the oil major: It notched $11.36 in diluted earnings per share (EPS) -- its second-best result of the last decade, behind only 2022.

But there are more reasons than just its most recent results to think that Chevron is a dividend stock worth buying now.

A drilling site in a desert setting.

Image source: Getty Images.

Chevron's capital return program

In 2023, Chevron spent $14.9 billion on stock buybacks (32% more than in 2022) and $11.3 billion on dividends (3% higher than in 2022). Combined, that's $26.2 billion, or 9.2% of Chevron's current market cap of $281.8 billion. Put another way, if Chevron allocated its entire capital return program toward buybacks, it could reduce its share count by more than 9% in a single year. Or if it put it all in dividends, the stock would yield more than 9%.

Apple, although in an entirely different sector than Chevron, has a reputation for supporting a massive capital return program -- mainly through stock buybacks. In its fiscal 2023 (which ended Sept. 30), Apple spent $77.55 billion on buybacks and $15.03 billion on dividends. That total of $92.58 billion was just 3.2% of its market cap of $2.87 billion.

That context highlights the sheer size of Chevron's capital return program and why you'd be hard-pressed to find a company that is buying back this much of its stock and also paying as large of a dividend.

It's important to mention that Chevron executed this capital return program while also reducing its debt load. It earned $19.8 billion in free cash flow in 2023 -- meaning it funded its entire dividend with cash.

Delivering when it matters most

What's even more impressive about Chevron's capital return program is that management kept it up during a time of decent, but not great oil prices.

In 2023, West Texas Intermediate crude oil -- the U.S. benchmark variety -- averaged $77.58 per barrel compared to $94.91 in 2022. Brent, the international benchmark, averaged $82.41 in 2023 compared to $100.94 in 2022.

Chevron has improved the quality of its portfolio so that it can break even at a lower oil price. In fact, it can cover its capital expenditures and its dividend even if Brent is just $50 per barrel.

Including the periods of low prices following the 2015 crash and even the 2020 crash, Brent prices have averaged $66.45 per barrel over the last eight years.

Granted, Brent prices have also averaged less than $55 per barrel for three out of the last eight years, so periods of low prices aren't uncommon. In those situations, Chevron has kept raising its dividend, but pulled back on its stock repurchases. Chevron's balance sheet is strong enough that it can grow its dividend even during a downturn. During an expansion, it can accelerate investments and return a ton of cash to shareholders. During a contraction, the company can tap into its reserve cash or lean on its balance sheet, something that many smaller players simply don't have the financial muscle to do so.

A stable and growing dividend

In its Q4 earnings release, Chevron announced an 8% raise to its quarterly dividend -- marking the 37th consecutive year the company has raised its dividend. The payout is now $1.63 per quarter per share, or $6.52 per share per year -- good for a forward yield of 4.3%.

Chevron's ability to generate plenty of cash flow to fund its operations, invest in future production, support its buyback program, and grow its dividend -- all while maintaining a solid balance sheet -- is a testament to why it is a stable and underrated dividend stock.

Companies like Procter & Gamble and Coca-Cola are often cited as quality dividend stocks -- and for good reason. But they have lower yields than Chevron and aren't buying back stock at the same pace. If you can tolerate the volatility of the oil and natural gas industry, then Chevron may be a good dividend stock for you.

Chevron has proven its value

2023 wasn't as flashy of a year for Chevron as 2022. But to me, it was a far more useful stress test that tells us what we can expect from the company when oil is around $80 a barrel like it is today. Chevron passed that test with flying colors. Its integration of Hess should further boost free cash flow without compromising the health of the balance sheet.

Add it all up, and there's a lot to like about Chevron as a quality dividend stock and one of the most well-rounded plays in the oil patch.