Will Chevron's Dividend Keep Climbing?

Chevron (CVX 1.54%) is one of the largest oil companies in the world, and it has a long track record of rewarding its shareholders with lucrative dividend payments. With a $1-per-share payout last quarter, Chevron has raised its dividends in each of the past 26 years. That places Chevron among an elite group of stocks known as the Dividend Aristocrats, each of which has made annual dividend increases for a quarter-century or longer.

With oil fetching more than $100 per barrel, Chevron has plenty of cash flow to return to its shareholders. But, even though the company's 3.4% dividend yield is impressive among U.S. stocks, and beats out ExxonMobil (XOM 1.15%) by a considerable margin, Chevron's yields aren't as high as U.S. rival ConocoPhillips (COP 1.23%), and is quite a bit lower than international rivals BP (BP 1.58%) and Royal Dutch Shell (RDS.A). Let's take a look at what's driving Chevron's dividends, and what changes we're likely to see in the future from the oil giant.

Dividend Stats on Chevron

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

Will Chevron keep gushing dividends?
Chevron has been treating investors well for years, combining dividends with impressive share-price appreciation. The stock hit new all-time highs earlier this year, and the ongoing strength in oil prices, and the beginnings of a recovery in natural-gas prices, promise the potential for further gains ahead.

The big issue that Chevron, Exxon, and all of their Big Oil peers face, though, is finding new avenues for production that can replace played-out and aging existing assets. Despite success industrywide in reaping secondary, and even tertiary, production from depleted wells using new technology, Chevron has to work hard to acquire new assets for development. In seeking out new opportunities, Chevron finds itself exposed to the dangers of international expansion. In particular, it shares safety and theft concerns in Nigeria with Shell and other producers there, and, like BP did with the Gulf oil disaster, Chevron has had to deal with legal disputes following oil spills. Other environmental issues in Brazil and Ecuador posed threats to profits before reaching favorable resolutions.

One potential growth outlet for Chevron and its peers is the rise in interest for liquefied natural gas. As gas supplies rise in certain locations, the demand for infrastructure to help transport that gas over long distances is strengthening. Chevron, in particular, has its hand in multiple LNG projects, including its Gorgon and Wheatstone LNG projects in Australia, a 50% stake in the proposed Kitimat LNG terminal in British Columbia, and various projects in Africa. Exxon is also looking to LNG as a potential growth driver, but Chevron's strength in the area could serve it well if large price disparities across global markets persist.

Still, growth is far from a certainty for Chevron. LNG might not prove as lucrative as some hope, especially if unconventional production methods prove successful throughout the world. The key to LNG profitability is a lack of locally available natural gas, and Chevron has been prudent about wanting to get firm commitments from partners before moving forward with major projects.

Chevron dividend data by YCharts.

As you can see, Chevron has accelerated its dividend growth in recent years, with its latest boost of more than 11% marking its second straight double-digit percentage annual jump. That's helped keep the company's yield ahead of Exxon, and has allowed Chevron to make progress in catching up with BP and Shell, especially as BP has had to recover from its spill-related dividend cut.

When will Chevron boost its payout?
With the company just having boosted its payout back in May, investors shouldn't expect another boost until next year. A jump to $1.10 per share quarterly wouldn't be unreasonable, especially given the company's low current 30% payout ratio. As long as oil prices remain high, cash flows should be ample to provide for double-digit percentage increases, and Chevron should retain its Dividend Aristocrat status well into the future.,

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