The third battle for DRIP Portfolio inclusion pitted the undersized but wily Midwestern chemical company Lubrizol (NYSE: LZ) against global integrated oil powerhouse Chevron (NYSE: CVX). While not quite of David/Goliath or Douglas/Tyson proportions, we didn't have skin in the game in either of those epic bouts.

Hitting the mat in the final round was Lubrizol, leaving Chevron standing victorious. While we certainly admire how the top brass has molded and run Lubrizol, we're just more excited about Chevron's prospects when we think many years out.

Prospects/Growth (edge Chevron): Lubrizol may have higher growth potential, but we believe that Chevron has longer earnings growth sustainability given its wide economic moat and scale. Chevron will profit as long as oil and natural gas play a role in the global economy, and despite our hopes for cleaner energy sources, we think oil and gas are here to stay for some time.

Execution (edge Lubrizol): We admire Lubrizol's commitment to research and development (consistently around 5% of sales) and its focus on earning acceptable returns on capital. Five straight years of increased ROIC, a strengthened balance sheet, and record 2009 profits are the result of the company's focus on execution.

Stewardship (edge Lubrizol): Top brass at Lubrizol showed they are serious about putting shareholders first. The company has recently reduced all director terms to one year, adopted majority voting rules even in uncontested director elections, repealed pesky change in control provisions, and eliminated tax gross-ups. Add this to a compensation policy based 50% on ROIC and growth initiatives and Lubrizol DRIPpers should be able to sleep comfortably at night knowing their investment is in well-aligned hands.

Risks (edge Chevron): Big oil will always have significant political risks stemming from natural disasters or nationalization of assets in unstable countries. Fortunately, these risks have been a part of the oil business for more than a century and should thus be already appreciated by the market. Lubrizol, on the other hand, has more unknown risks and uncertainties associated with its business.

Valuation (edge Chevron): Chevron shares have ticked up a bit, from $73 to $77 since I (Todd) originally wrote about the stock, but I'm still comfortable paying up to $80 a share, which is near the upper range of my dividend discount model valuation. On a relative valuation basis, Chevron shares also look attractive versus its main competitors:


Enterprise Value-to-EBITDA

Forward P/E

Consensus Long-Term EPS Growth





ExxonMobil (NYSE: XOM)




ConocoPhillips (NYSE: COP)




Source: Capital IQ (a division of Standard and Poor's) and Thomson.
EBITDA = earnings before interest, taxes, depreciation, and amortization.

Bottom line: Chevron edged out Lubrizol 3-2.

DRIP details
To begin your Direct Stock Purchase (DSP) / DRIP investment in Chevron, Click on the "Stock Purchase" link on this webpage to be directed to information on the direct stock purchase and dividend reinvestment programs. Be sure to read the plan's prospectus, which outlines all the fees and costs, carefully!

Among other things, you'll want to note:

  1. The minimum initial purchase is $250; after that it's at least $50 per investment.
  2. You can choose to reinvest all, or just a portion of the dividends you are paid. Plus, there's no fee for reinvestment if you own less than 200 shares.
  3. If you make additional purchases, the fee is $2.00 per transaction and $0.05 per share. So if you bought 10 additional shares, it would cost $2.50 ($2.00 + $0.50).
  4. You'll get a statement after each dividend is paid, or you can view your account online.

Once you've reviewed the prospectus, follow the step-by-step instructions to invest online.

The Fool's fantastic disclosure policy makes us wait at least 10 days before purchasing our own shares. We'll let you know when we've made our transaction.

On that note, our initial investment in Microsoft is complete. Here's how our real-money DRIP port stands today:


Shares Held

Average Price Paid

Price Today







If you haven't already done so, follow us on Twitter to be alerted when we make DRIP Portfolio announcements, and bookmark our homepage to view all of our past commentaries.

Todd and Bryan own shares of Microsoft and they will soon be owners of Chevron via their shiny, new DSP/DRIP accounts! Microsoft is a Motley Fool Inside Value recommendation. Chevron is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of ExxonMobil and Microsoft. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.