How to Invest in Chevron (CVX)

Operating throughout the energy value chain, Chevron (CVX 0.37%) is an industry stalwart dedicated to rewarding shareholders, so it's not surprising that many investors are keenly interested in Chevron stock. The company has come a long way from its modest beginnings in 1879, as the energy industry was starting to develop in California. Now, it is a global energy industry leader, operating a vast portfolio of upstream and downstream assets. Plus, the company is expanding beyond fossil fuels and trying to increase its presence on the burgeoning hydrogen landscape, targeting annual hydrogen production of 150,000 metric tons annually by 2030.

Whether you're new to the oil patch or you're looking to diversify your energy holdings with an oil supermajor, there are plenty of reasons why Chevron will come up on investors' radars. Let's look at the steps needed to power your portfolio with Chevron stock and some things to consider before investing in this energy powerhouse.

How to buy stock

How to buy Chevron stock

Before they can gas up on Chevron stock, there are a few basic steps that investors must take to buy stocks.

Step 1: Open a brokerage account

Buying Chevron stock is easy -- but it's not as easy as visiting the corner store. Investors must first open a brokerage account. Although there are several options, inexperienced investors may be best off choosing Fidelity with its zero-commission online stock trades.

Step 2: Figure out your budget

An essential step on the road to building personal wealth is determining a budget. After considering household expenses and the creation of an emergency fund, investors should identify an amount to invest that doesn't jeopardize their individual financial situations.

Step 3: Do your research

Before investors decide to buy a stock, it's important that they do their due diligence. For prospective Chevron investors, this means brushing up on energy stocks -- and oil stocks in particular. After doing their research, investors should be confident that Chevron is an appropriate choice.

Step 4: Place an order

With a few final clicks, investors will have a new oil stock in their portfolios. After entering the stock's ticker (CVX for Chevron) and choosing to buy the stock (instead of sell), investors must choose whether it's a market order or a limit order. In addition, they will have to determine the size of their purchase -- whether it's one share or many more.

Should I invest?

Should I invest in Chevron?

Unfortunately, there's no blanket answer to the question of whether or not investing in Chevron is a smart idea. Each investor's situation is unique, so it's important for individuals to thoroughly examine their own positions. There are several things, however, that every investor should consider before deciding whether Chevron stock would be a good fit for them.

At the top of the list is the question of whether or not you're interested in an oil and gas investment. Some investors are hesitant to invest in oil and gas stocks because of concerns about the environmental risks that oil and gas operations pose or other reasons. Not every investor believes that oil and gas stocks are smart investments. If you find yourself in this boat, Chevron stock is not the right choice for you.

Another consideration is whether you're looking to beat the market. Unless you've held Chevron stock for decades, the odds are good that Chevron stock has underperformed the market. Over the past 10 years (as of early March 2024), for example, Chevron has provided a 99% total return, while the S&P 500 has provided a 227% total return. Go back 20 years, though, and you'll find the total return of Chevron stock edges past that of the S&P 500, 600% and 551%, respectively. There's no certainty about what the future holds in store for Chevron stock, but looking at its past performance can provide some useful insight.

Some investors seek the reassurance of an investing wizard like Warren Buffett to inform them on what stocks to consider. For these people, Chevron fits the bill. The stock found its way into the Berkshire Hathaway portfolio in late 2020, and it has stayed there -- in varying amounts -- ever since.

Looking to get paid for doing nothing? If you're an investor looking to generate passive income, Chevron is a worthy consideration. The company has hiked its dividend for 37 consecutive years. For this reason, Chevron is a great choice for income investors.

Profitability

Is Chevron profitable?

Although the effects of the pandemic contributed to Chevron (and many peers) reporting a net loss in 2020 and low energy prices compromised its profitability in 2016, Chevron, with the help of its extensive operations throughout the value chain, has generally reported a profit over the past 30 years. In 2023, Chevron reported diluted earnings per share of $11.36. It's important to recognize, though, that it's not only the fact that the company is profitable that warrants recognition, but the fact that it distinguishes itself from peers regarding the degree to which it's profitable. Compared to oil supermajor peers ExxonMobil (XOM -2.78%) and Shell (SHEL 0.0%), Chevron consistently generates a higher earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.

Presumably, Chevron will remain profitable in the coming years. The company is developing its Permian assets, which are expected to generate strong returns. Chevron also is expanding operations in the Gulf of Mexico, which is also expected to contribute to the bottom line.

Dividends

Does Chevron pay a dividend?

Not only does it pay a dividend, Chevron is one of the most distinguished dividend stocks available to investors. For 37 consecutive years, Chevron has raised its payout. If the company returns $6.52 per share in 2024 (as it seems planned), it will mean that it will have hiked its dividend at a 4.5% compound annual growth rate over the past 10 years.

ETFs

ETFs with exposure to Chevron

For investors interested in not just Chevron but broader exposure to energy stocks, an oil exchange-traded fund (ETF) that includes Chevron among its holdings is a great choice. There are a variety of choices, but the Energy Select Sector SPDR Fund (XLE -0.92%) is a top option. Including stocks that represent the energy sector of the S&P 500, the Energy Select Sector SPDR Fund counts Chevron as one of its top positions, representing about 16.8% of holdings. The ETF has a gross expense ratio of 0.09%, and it makes distributions on a quarterly basis.

For investors who are more interested in Chevron as a passive income opportunity and who are less interested in energy exposure, the WisdomTree Global High Dividend Fund (DEW -0.12%) is a top choice. The ETF focuses on large-cap, worldwide companies that offer high dividend yields. Chevron is the ETF's third-largest holding. With a 0.58% expense ratio, the ETF had a dividend yield of 4.6% as of Dec. 31, 2023.

Stock splits

Will Chevron stock split?

Chevron last completed a 2-for-1 stock split in 2004, but it has made no indication that it plans on splitting it again any time soon. With many brokers offering investors to acquire fractional shares of stocks, many companies are less inclined to offer stock splits.

While there are many stocks that split in 2023 and several that are scheduled to split in 2024, it's unlikely that management will announce an upcoming split to Chevron's stock sometime soon.

Related investing topics

The bottom line on Chevron

In light of the boom and bust cycles of energy prices, some investors may be wary of investing in oil and gas companies like Chevron. For people who have held Chevron stock in their portfolios for the long term, Chevron has proven to be a great investment, outperforming the S&P 500 over the past 30 years.

Whether you're an investor interested in benefitting from upswings in energy prices, looking to generate steady passive income, or looking for a conservative stock that has the endorsement of sage investors like Buffett, Chevron is a compelling choice.

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