Over the past 10 years Chevron Corporation (NYSE:CVX) has returned an average of 4.0% per year from dividend payouts. The company currently pays out a dividend yield of 3.8% to shareholders, making it a relatively attractive dividend stock. Does Chevron tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How does Chevron fare?
The current trailing twelve-month payout ratio for the stock is 68.7%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 55.1%, leading to a dividend yield of around 3.9%. However, EPS should increase to $8.39, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. CVX has increased its DPS from $2.6 to $4.48 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Chevron has a yield of 3.8%, which is on the low-side for Oil and Gas stocks.
Considering the dividend attributes we analyzed above, Chevron is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three fundamental factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CVX’s future growth? Take a look at our free research report of analyst consensus for CVX’s outlook.
- Valuation: What is CVX worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CVX is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.