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Wednesday, February 21, 2024

Beat the Dow Jones With This Cash-Gushing Dividend Stock

Beat the Dow Jones With This Cash-Gushing Dividend Stock

Dividend stocks can be a great source of passive income. The best performers have robust cash flows that support and grow their dividend payouts. A stock that pays investors nearly 4% and has increased its dividend for 36 consecutive years is Chevron (NYSE: CVX).

THE integrated oil and gas company has benefited from strong favorable winds for its activity in recent years. These tailwinds allow it to rake in lavish cash flow, which it has used to make strategic acquisitions and return capital to shareholders through a growing dividend and share buyback program. Here’s why this cash-gushing dividend stock can be a solid addition to your portfolio today.

Beat the Dow Jones With This Cash-Gushing Dividend Stock

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Chevron has increased its dividend for 36 consecutive years thanks to its balanced business

Investing in oil and gas stocks carries risks because these companies can be volatile depending on the underlying price of these commodities. Companies with intensive drilling operations are benefiting from rising oil prices, resulting in attractive margins and cash flows. This activity, known as upstream operations, includes the exploration, production and transportation of crude oil and natural gas.

Conversely, if oil prices fall, company results will suffer. One way oil and gas companies can balance this issue is through downstream operations. Chevron’s downstream operations include refining crude oil into petroleum, transporting refined products through pipelines, and operating fuel stations worldwide.

As an integrated oil and gas company, Chevron can better weather oil price volatility. This balanced business model is why Chevron has increased its dividend payout for 36 consecutive years, despite being a major player in the volatile oil and gas industry.

Macroeconomic tailwinds helped Chevron harvest cash hand in hand

In recent years, macroeconomic factors have worked in favor of oil and gas companies. At the start of the pandemic, demand plummeted, prices fell, and oil supplies tightened significantly as a result. The Russian-Ukrainian conflict has further limited oil supplies, causing prices to soar last year.

Chevron has benefited greatly from the rise in oil prices. Last year, its upstream operations brought in $30 billion, an increase of 91% from the previous year, while net profit of $35.5 billion increased by 127%. . Its free cash flow, or the cash remaining after paying operating costs and capital expenditures, was $37.6 billion.

CVX (TTM) Earnings ChartCVX (TTM) Earnings Chart

CVX (TTM) Earnings Chart

Oil prices have fallen this year and Chevron’s profits haven’t been as strong. As of September 30, the company’s total revenue was down 19% from last year and net profit was down 34%.

The stock has underperformed the Dow this year and is down 10% compared to the index, which has gained 15%. However, zooming out over the past three years, Chevron stock still significantly outperforms the Dow, returning 102% versus 32%.

Putting liquidity to work for long-term growth

Investors can take comfort in knowing that the company has used windfall profits over the past two years to increase its dividend payout, increase its share buyback program, pay off debtand make acquisitions this year.

Earlier this year, Chevron raised its dividend 6% while approving a $75 billion stock repurchase program. Through September 30, the company repurchased $7.8 billion under the repurchase program.

Chevron also used this windfall to make several acquisitions to increase future profits. Last year, the oil and gas giant acquired Renewable Energy Group for $3.15 billion, making it the second-largest producer of biorenewable fuels in the United States. He also caused a stir in October by agreeing to buy Hesse for $60 billion in debt and equity, which is expected to close in early 2024.

Chevron is well positioned to continue rewarding its shareholders

Chevron should continue to benefit from tailwinds from tight oil supplies and underinvestment in the industry. Key acquisitions should help it focus on its core positions and strengthen its already strong balance sheet, allowing it to return even more capital to shareholders – making this cash-gushing dividend stock a solid long-term buy for investors today.

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Courtney Carlsen has positions at Chevron. The Motley Fool recommends Chevron. The Mad Motley has a disclosure policy.

Beat the Dow Jones with this cash-generating dividend stock was originally published by The Motley Fool

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