If there was ever a year to be cautious for the equity investor, it is 2022. With rising inflation and a recession around the corner, you want to look at companies that have survived harsh conditions before. These are times when dividend stocks come into play and Chevron (NYSE: CVX) is one such company.
The energy giant is a dividend aristocrat which means it has increased dividend payouts for the last 25 consecutive years. Chevron has in fact increased dividends every year for the last 35 years. Dividend aristocrats are expected to have a market capitalization of at least $3 billion (Chevron is valued at $355 billion as of June 7, 2022). Further, it offers investors a forward dividend yield of 3.2%.
Chevron stock has performed well in 2022
Chevron stock has gained almost 49% in 2022 so far compared to the S&P 500 which has lost 14.34% in the same period.
When the company reported its earnings for Q1 2022, it surprised both investors and analysts. Earnings came in at $6.3 billion or $3.22 per share compared to $1.4 billion or $0.72 per share in the corresponding period in 2021. Cash flow from operations was $8.1 billion in Q1 compared to $4.2 billion in the year-ago period. Meanwhile, capital and exploratory expenditures for the March quarter stood at $2.8 billion compared with $2.5 billion in Q1 of 2021.
Chevron has announced plans to buy back $10 billion worth of stock in 2022 which is good news for shareholders. Chevron has also said that it will buy back 25% of its outstanding shares if Brent oil averages $75 a barrel for the next five years.
The World Bank has said, “Because of war-related trade and production disruptions, the price of Brent crude oil is expected to average $100 a barrel in 2022, its highest level since 2013 and an increase of more than 40% compared to 2021. Prices are expected to moderate to $92 in 2023—well above the five-year average of $60 a barrel.”
Chevron focuses on clean energy
While Chevron is raking in huge profits thanks to the rising oil prices, it is also looking at diversifying into other energy businesses. It has announced an agreement to acquire Renewable Energy Group, accelerating its plans in the renewable fuels business.
Its Q1 2022 press release said, “The company also advanced its hydrogen, carbon capture and offsets businesses with an agreement with Iwatani Corporation of America to build 30 hydrogen fueling stations in California, an investment in Carbon Clean, a global leader in cost-effective industrial carbon capture, and an agreement with Restore the Earth Foundation, Inc. on a carbon offsets reforestation project of up to 8,800 acres in Louisiana.”
Both these moves are pertinent when you take into account the company’s long-term view. Chevron CEO Mike Wirth, at the Bernstein's Strategic Decisions Conference earlier this month, said, “I personally don’t believe there will be a new petroleum refinery ever built in this country again.”
He gave this response when he was asked about new capacity being added to the Gulf of Mexico. No oil refinery has been built in the US since the 1970s. Clearly, Chevron knows which way the government’s policy is leaning toward.
From the looks of it, Chevron has read the current situation well. If oil prices remain strong, Chevron stock will continue to move up. And its long-term investments in renewables and lower carbon fuels will help the company grow in the future as well. When you look at all these factors, it would be safe to assume that Chevron’s dividends are not in any danger.
It also helps that Warren Buffett has increased his stake in Chevron in 2022. Buffett has owned Chevron stock since the second half of 2020, and now the company comprises around 7% of his portfolio. Talk about a stamp of approval from the Oracle of Omaha!