Wednesday, December 17, 2014

Recent Buy: CVX

Dec 16, 2015: Bought 25 shares of CVX at $102.97 per share.

Founded in 1984 and based in San Ramon, California, CVX is a multinational energy corporation involved in all aspects of the oil and gas industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. CVX is the fifth largest integrated energy company in the world and conducts business in approximately 180 countries.

Chevron is a Dividend Champion with a track record of 27 consecutive years of dividend increases. It pays quarterly dividends of $1.07 per share in the months of March, June, September and December.

CVX is an existing holding and the first stock I bought for DivGro. On January 8, 2013, I bought 25 shares of CVX at $109.68 per share and at an initial yield on cost (YoC) of 3.28%. After recent weakness in Energy sector stocks, I'm averaging down to a per share price of $106.33. This time, my initial YoC is 4.16%:

Over the past 10 years, CVX has outperformed the S&P 500 comfortably, gaining 97% versus the 66% of the S&P 500. The average 5-yr Beta of CVX is 1.16.

Analysis of CVX

My fair value estimate of CVX is $119, so I bought shares at a discount of nearly 16%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.

CVX passes the following of my selection criteria:
  • A streak of at least 5 years of dividend increases (27 years)
  • Dividend yield exceeds 2.75% (4.16%)
  • Chowder rule: Dividend yield plus 5-year CAGR exceeds 8% (12.96%)
  • Earnings per share (EPS) percentage payout is less than 40% (39.41%)
  • Debt to equity ratio is below 50% (16%)
  • Price to earnings ratio (P/E) is less than 20 (TTM 10.05x and Forward 12.31x)
  • P/E to annual EPS growth (PEG) ratio is less than 2 (1.84)
  • Reasonable confidence in continued dividend growth (Yes)
  • Price discount is at least 5% of fair value estimate (15.57%)
CVX fails on only one of my selection criteria:
  • 5-year CAGR is at least 10% (9.04%)

Based on these statistics, CVX earns 7 out of a possible 7 stars: (*******)

The following chart shows CVX's dividend payments and earnings per share over the last 10 years. CVX's EPS is growing generally, though it seems to be a bit cyclical. However, the dividend is growing steadily:

Other ratings for CVX

 Zacks Rank 3-Hold
 S&P Capital IQ's Stock Report (****-) Buy
 Thomson Reuters StockReport+  (7/10) Neutral 
 MorningStar Rating (****-)
 The Motley Fool's CAPS Rating (****-)

Concluding Remarks

CVX topped my December dashboard of dividend growth stocks and is the only stock that earned 7 out of 7 stars. With oil continuing to trade lower and with Energy sector stocks trading lower, now is a good opportunity to buy high quality oil stocks and to dollar-cost average down.

As an integrated energy company with natural gas exposure, CVX should handle the decline in oil prices better than smaller, non-diversified companies. CVX not only produces oil, it refines and markets products to end users. Refining margins are not directly tied to the crude oil price, but rather to regional spreads. Also, CVX produces natural gas, the price of which has been quite steady in comparison to the crude oil price.

One concern is CVX's relatively slow production growth despite significant cap-ex spending. Growth should accelerate when multi-year projects result in new oil and gas production in future years, contributing to cash flow in 2015-2017. It is widely expected that CVX would cut its cap-ex budget next year, given lower commodity prices.

An extended period of lower crude oil prices will cause earnings to drop, but this has happened before with CVX without negatively impacting its dividend. The current yield of over 4% is very attractive to dividend investors and makes CVX an excellent long term prospect.

25 shares of CVX adds $107 of expected dividend income, increasing DivGro's projected annual dividend income to $4,881.01. After SDRL's dividend suspension, I'm happy to say that I've restored my goal of reaching $4,800 in projected annual dividend income for 2014.

Thanks for reading! Do you own CVX? Are you planning to buy (more) shares? 


  1. Nice. I will be buying BBL this week, but my next buy will be cvx.

    1. Thanks!. Yeah, I added to my BBL shares last month. You're doing so at an even better price!

  2. Good move, FerdiS. I have my eye on CVX as well and would mind picking it up at these levels


    1. I guess you meant to say "wouldn't". Yeah, I've been monitoring CVX and decided to make the move when it got "close enough" to $100 per share. Perhaps it will go lower, yet, but I don't want to wait for that possibility.

      Take care!

  3. Great buy here and I just read Roadmap's analysis of CVX, he also believe to be very undervalued. I'd love to add here to my position but there's a few other options making the decision much harder for me. Thanks

    1. Thanks, Captain Dividend -- yes, with the 4-5% drop in the markets the past 2 weeks, there are several stocks that present themselves as good candidates. For me, though, CVX appeared at the top of my December dashboard, so I decided to go with it!

  4. Great buy, Ferdis,

    I was waiting for it to reach 98-99$ but finally it has escaped from me :)


    1. Thanks, Cazadividendos -- yes, unfortunately for you, CVX has recovered rather quickly. Who knows, maybe you'll get another chance...

      Good luck!

  5. Nice buy DivGro! CVX is a solid long term play and it appears you got in right before the bounce. I saw it close to $100 but didn't jump on it. Now I'm thinking I may have missed the bought. :( AFFJ

    1. Interestingly, in the 25 minutes between the time I decided to buy and getting my order in, the price jumped by about $1.20. Next time, I'll be more decisive! ...

      The 3-day rally since Wednesday is making me look smart, with CVX now trading at $110.40. More luck than skill, I'd say...


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