Dividend stocks can be an excellent source of passive income for investors. Chevron (CVX +2.90%) is one company that has rewarded dividend investors for years. Despite operating in the volatile oil and gas industry, Chevron and its business model have proven to be resilient; in fact, the company has provided investors with a growing dividend payout for 39 consecutive years.
Here's why Chevron is a smart dividend stock for investors to buy today.
NYSE: CVX
Key Data Points
Chevron's oil and gas advantage
Chevron operates as an integrated oil and gas company, with upstream and downstream operations that help diversify its earnings and provide it with resilience in an industry vulnerable to changes in spot gas and oil prices.
In recent years, Chevron has been prudent with its finances, prioritizing a disciplined approach to spending, debt reduction, shareholder returns, and positive cash flow. The company is taking a measured approach to capital expenditures, and last year it achieved $1.5 billion in structural cost reductions. It expects to achieve $3 billion to $4 billion in structural cost reductions by the end of 2026.
Chevron's growth is driven by high-margin assets, including deepwater assets in the Gulf of Mexico (the Anchor and Whale projects). Its acquisition of Hess, which includes Hess' 30% stake in Guyana's Stabroek Block, gives it massive, low-cost, multi-decade production capabilities.
Image source: Getty Images.
In addition, the company produced over 1 million barrels of oil equivalent per day in the Permian Basin. Its drilling rig efficiency has more than doubled since 2022, allowing it to drill development areas at a significantly lower cost. The company is leveraging technology to more efficiently extract oil and gas, and has engineered its portfolio to cover both capital expenditures and dividends even if Brent oil hits below $50 per barrel. This low break-even point provides a safety margin even if oil prices were to fall from here.
Its drilling business is complemented by its downstream operations, which include refining and marketing. Its refineries in the United States have a high Nelson Complexity Index, enabling them to process diverse crude types into high-value products and generate higher refining margins than peers. Its downstream segment alone is projected to generate $4 billion in annual free cash flow through the end of the decade, providing stability to its overall portfolio.
A long history of dividend raises
Chevron has done an excellent job of managing its business and its balance sheet over the past several decades. Not only does it offer an attractive dividend yield of 4%, but it has also increased its annual dividend payments for 39 consecutive years. On top of that, it has repurchased shares in 18 of the past 22 years.
Looking ahead, Chevron projects free-cash-flow growth of 10% annually over the next five years. If you're seeking passive income and diversification from the energy sector, Chevron is an excellent choice.
