Chevron is the
world’s fourth largest oil company based on proven reserves. The company has grown its profits at a 20%+
annual rate over the last 10 years while earning an 11-20% return on
equity. The dividend growth rate has not
kept pace with profits; but the gap in the rate of increase has been
closing. CVX prospects are bright based
on:
(1) it has sold most of its non-core, high
cost assets redeploying the proceeds in oil and gas exploration,
(2) one of the
most promising development project pipeline in the industry has a number of
very promising exploration projects that will grow its reserves. They include deep water production in the Gulf of Mexico as well as fields in western Australia , Angola , Nigeria and the
Gulf of Thailand
(3) CVX is
re-starting its stock buy back program.
(4) increasing
focus on alternative energy sources.
Negatives:
(1) exposure to fluctuating oil and gas prices,
(2) its extensive international operations
subjects it to currency fluctuations and political risk,
(3) its large capital expenditure budget will
increase its balance sheet leverage,
(4) excess capacity is putting pressure on
refining margins.
Chevron is rated
A++ by Value Line, has a low 11% debt to equity ratio and its stock yields
approximately 3.2%.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio Since 2004
CVX 3.2% 8%
34% 10
Ind Ave 2.6 9 28 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2004 Margin Rating
CVX 11% 16% 3 9%
A++
Ind Ave 21 18 NA 7 NA
Chart
Note:
CVX stock made great progress off its March 2009, low, quickly surpassing the downtrend
off its May 2008 high (straight red line) and the November 2008 trading high
(green line). Long term, it is in an
uptrend (blue lines). Intermediate term,
it is in an uptrend (purple lines). The
wiggly red line is the 50 day moving average.
The Dividend Growth Portfolio owns a 75% position in CVX. The upper boundary of its Buy Value Range is
$110; the lower boundary of its Sell Half Range is $134.
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