Chevron (CVX -0.60%) is at a pivotal moment. The oil giant is on the cusp of a major free-cash-flow surge. It has also significantly enhanced its long-term growth trajectory through a series of strategic investments. To capitalize on this opportunity, now is the time to take action.
Here are three reasons to buy the oil stock like there's no tomorrow.
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A cash-flow gusher ahead
Chevron has invested heavily in recent years to expand its output in several key regions. Notable investments include the Future Growth Project in Kazakhstan, several projects in the Gulf of Mexico (also called the Gulf of America in the U.S.), and the continued development of its Permian Basin position. These projects are on track to drive a $10 billion improvement in Chevron's free cash flow next year.
The company also recently closed its long-awaited acquisition of Hess, which will further enhance and extend its free-cash-flow growth outlook. Chevron expects the deal to add another $2.5 billion to its free-cash-flow total next year, partly because it anticipates capturing $1 billion in annual cost savings by year end. This deal should continue fueling free-cash-flow growth into the 2030s as Chevron and its partners complete additional projects offshore Guyana.
As Chevron's cash flow rises, the company will have more money to return to investors through share repurchases and dividends.
An attractive and steadily rising dividend
Chevron boasts one of the best dividend-paying track records in the oil patch. The company has increased its payout for 38 straight years -- the second-longest streak among oil companies. It has also delivered peer-leading dividend growth over the past decade.
Chevron is in an excellent position to continue delivering above-average dividend growth. With its cash flow set to surge next year and expected to grow into the next decade, the company has ample fuel for dividend increases. Add to that its fortress balance sheet -- its net debt ratio of less than 15% is well below its 20% to 25% target -- and Chevron has tremendous financial flexibility. With its dividend currently yielding about 4.5% -- more than triple the S&P 500's level -- and with more dividend growth ahead, Chevron stands out as an attractive stock for income-seeking investors.
Lower-carbon energy upside potential
While oil and gas will continue to fuel Chevron's growth in the near term, the company has more than acknowledged the ongoing transition to lower-carbon energy. It has already begun investing meaningful capital to move its own business toward cleaner energy solutions.
Chevron expects to dedicate $1.5 billion -- approximately 10% of its 2025 capital budget -- to initiatives aimed at reducing the carbon intensity of its operations and expanding its new energy business. The company is investing in renewable fuels, hydrogen, and carbon capture and storage. For example, it recently completed a project that expanded production at the Geismar renewable diesel plant from 7,000 to 22,000 barrels per day.
Earlier this year, Chevron entered the U.S. lithium supply sector by acquiring approximately 125,000 net acres in the lithium-rich Smackover Formation, which spans Northeast Texas and Southwest Arkansas. This deal marks the first step toward its goal of establishing a commercial-scale domestic lithium business in the coming years.
Chevron aims to develop several profitable, lower-carbon energy platforms over the next few years. By establishing these new businesses, the company positions itself to keep growing for decades as the world steadily shifts to lower-carbon energy.
Lots of growth and income ahead
Chevron offers investors a compelling combination: lucrative dividend income matched with visible earnings growth potential. The oil company expects a meaningful near-term uptick in free cash flow, which should persist for years, allowing it to continue raising its high-yielding dividend. With these catalysts, Chevron could produce robust total returns in the coming years -- another reason investors should consider loading up on shares.
