Chevron (CVX +0.91%) is one of the world's largest energy companies. The fossil fuels it produces are crucial to the global economy. It's also investing heavily in developing lower-carbon energy sources that will be vital in the future.
Here's a look at how an investment in Chevron has performed over the past five years compared to the S&P 500 and what factors fueled the oil stock's returns.
Image source: Getty Images.
Chevron's five-year performance
At first glance, Chevron has been a poorly performing investment compared to the S&P 500 over the past five years:
|
One-year |
Three-year |
Five-year | |
|---|---|---|---|
|
Chevron |
-5.5% |
-16.5% |
75.7% |
|
S&P 500 |
13.5% |
66.8% |
87.9% |
Data source: Ycharts.
As that table shows, its stock price is down over the past one- and three-year periods, a time when the S&P 500 has performed very well. On a more positive note, it has performed much better over the past five years, though it has still trailed the S&P 500.
However, these stock returns are an incomplete picture because they don't include Chevron's dividend payments. That's noteworthy because Chevron pays a high-yielding and steadily rising dividend. The oil giant's payout currently yields 4.5%, triple the S&P 500's level (1.2%). Chevron has increased its payment for 38 straight years.
When adding in Chevron's dividend, its total return improves:
|
One-year |
Three-year |
Five-year | |
|---|---|---|---|
|
Chevron |
-1.8% |
-6% |
115.5% |
|
S&P 500 |
13.5% |
66.8% |
87.9% |
Data source: Ycharts.
While Chevron's shares still trail the S&P 500 over the past one- and three-year periods, they have meaningfully outperformed the broader market index over the last five years.
What has fueled Chevron's returns?
The biggest factor impacting Chevron's performance over the past five years is the price of crude oil. Brent oil, the global benchmark price, has decreased by 12.5% over the past year and by nearly 25% over the last three years. Given that slump, it's no surprise to see a decline in Chevron's share price during that time frame. Brent has performed much better over the past five years, rising almost 38%. That increase has played a major role in Chevron's market-beating returns during that period.
NYSE: CVX
Key Data Points
However, crude oil prices aren't the only factor influencing Chevron's share price. Chevron has spent the past several years building a more resilient portfolio. It has invested heavily in expanding its production in low-cost areas. It also made several acquisitions to increase its scale and bolster its low-cost resource base, including PDC Energy and Hess. Additionally, Chevron is building several lower-carbon energy platforms.
As a result, Chevron currently has the lowest breakeven level in the industry at $30 a barrel. Meanwhile, the company's investments have put it in the position to deliver significant free cash flow growth over the next five years, even if oil prices don't improve.
The importance of drilling down a little deeper
At first glance, Chevron may not appear to be an appealing investment, given the performance of its stock price over the past several years. However, Chevron has performed much better than its stock price might suggest when adding in its lucrative dividend, showcasing the power of dividend investing. Further, while oil prices can impact the company's stock price in the near term, Chevron's dividend and its growth investments can help provide the fuel to produce stronger returns over the longer term.
