Saturday, January 22, 2011

Chevron Stock Analysis

Chevron (CVX) has paid dividends for 40 years and have consistently raised them for 20!! One of the longest that I have seen, that's for sure.  If you aren't aware, we are in the oil consumption age and even though we are trying to find other renewable energy sources, we will be using Oil for a very, very long time.  Why not have a company that is heavily involved and one of the biggest names in the Energy sector then? 

Their price: As of January 22nd 2011 the price is at $93.78. I know, I know - that is extremely high and I haven't even analyzed a company yet with such a high stock price, which may though off potential new investors.  Their 52 week low is $66.83 and their 52 week high is $93.94.  Hmph.  They are at their 52 week high and their trend is definitely ticked up over the last year.  I normally never buy a stock when its at its peak in any given time period.  This is the only con in my book for Chevron, but this isn't a company you buy one day and then hours/days later you sell it.  

Price to Earnings Ratio: Chevron currently has a P/E ratio of 11.19 (According to Google Finance), which of course is below the S&P average and according to Morning star is below the 14.5 P/E for the industry average. Therefore, Chevron's stock STILL is relatively CHEAP to its earnings and is currently undervalued against the average of both the industry and S&P index.

Dividend Yield: Oil companies like paying dividends back to their shareholders.  Their current dividend yield when trading at $93.78 is just over 3%.  A 3% yield on a $93 share price is pretty damn good if you ask me.  What's so surprising is that they can pay an above average dividend, present an above average yield on an incredible high-priced stock!  If Chevron's stock price dropped $10 to $83 per share, their yield would be 3.47%, just for measure.  Conclusion on their yield - it is extremely good, especially that they have had a track record of paying and increasing their dividend.  Now on to that growth rate on their cash flow to shareholders: their dividend yield growth rate is 7.1% according to my analysis since 1970.  That isn't too shabby if you ask me.  This allows them to keep raising their dividend on an annual basis, helping to keep up with an increasing share price.  

Payout Ratio: Their dividend is $2.88 per year and their EPS is $8.38. Therefore, 2.88/8.38 = 34.4%, just below my 40-60% range that I like.  What this means is that they tend to retain most of their earnings, to help grow their company, expand their stores and market and possible acquire other companies. As an investor, 34% payout isn't too bad, though I would like to see them provide back more of their earnings to their shareholders.  It is nice to note that they are earning a tremendous amount per share of common stock; a great sign of a strong and lasting corporation.  

Conclusion: Chevron is also an extremely sound company to add to your portfolio at any time.  Given it's current price, I would like to see it cheaper, but then again, I know with a DRIP that you will be able to catch it at occasional low points.  A reason why an oil company is great, is no matter what - you will be filling up your vehicle at the pump to go from point A to point B and as a country we will be using it tremendously, at least throughout the next few decades.  I do not have a position in Chevron, but would want to do more analysis on the corporation before adding a position.  Thank you for reading this brief analysis, good luck and take care.  

-Lanny B.

Disclosure: I do not hold nor recommend anything. This is actual data, analysis, however I base no investor recommendation. However, I personally would add/start a position on this firm, however my direction is different from anyone else's. Thank you for your understanding.

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