Last update on 2024-06-28

Chevron (CVX) - Dividend Analysis (Final Score: 6/8)

Analyze Chevron's (CVX) dividend policy with a detailed 6/8 score evaluation based on yield, growth, payout ratios, and historical performance.

Short Analysis - Dividend Score: 6

We're running Chevron (CVX) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis for Chevron (CVX) based on eight criteria shows a balanced but somewhat risky investment in terms of dividends. Chevron has a lower-than-industry-average dividend yield of 4.0493%, but it has a history of consistent and resilient payouts, even in tough economic times like 2008 and 2020. The average annual dividend growth rate over the past 20 years is 30.05%, well above the 5% benchmark, though with significant fluctuations. Despite some years with extremely high payout ratios (like 2019 and 2020), the overall average payout ratio is a comfortable 21.88%, indicating sound dividend management. Chevron's EPS has mostly covered its dividends except for years like 2020 and 2016. Cash flow coverage has been strong in some years but zero in others, showing inconsistency. Chevron has consistently paid dividends for over 25 years, and although there have been abrupt changes, none have dropped over 20%.

Insights for Value Investors Seeking Stable Income

Chevron (CVX) appears to be a somewhat stable dividend payer with a long history of consistent payouts, despite occasional volatility and risks. For investors seeking steady income, it's a reliable option due to its decades-long history of dividend payments and commitment to shareholder returns. However, due to fluctuations in payout ratios and coverage by EPS and cash flow, cautious, regular monitoring is suggested. Diversifying investments and not solely relying on Chevron for dividend income is advisable given the occasional financial instability. Overall, Chevron is worth considering but with an awareness of its periodic volatility and careful scrutiny of its financial health.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is an essential indicator for income-focused investors as it provides the annual dividend income per dollar invested in the stock. A higher yield can indicate a potentially higher return on investment through dividends.

Chevron's current dividend yield of 4.0493% falls below the industry average of 5.02%, which might be seen as less attractive to new investors primarily focused on dividend income. However, from a historical perspective, Chevron's yield has shown significant fluctuations. For instance, during the financial crises like in 2008, the yield spiked to 3.4203%, indicating resilience. The dramatic peaks, particularly in 2020 (12.2202%), and consistent dividends since 2003 highlight Chevron's commitment to returning value to shareholders. Despite the current lower yield, the consistency and historical peaks provide a reassuring indicator of Chevron's financial robustness and dividend sustainability. This trend shows a capacity to withstand market pressures while maintaining dividend payouts. While it's currently below the average, the historical performance demonstrates significant potential for future dividend growth and sustainable returns.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate evaluates how well a company has been able to increase its dividend payments over a specified period of time. For Chevron (CVX), examining a 20-year historical performance reveals sustainability and growth in shareholder returns.

The average dividend growth rate for Chevron (CVX) over the last 20 years is approximately 30.05%. Notably, Chevron's dividend per share has shown significant variability, with values ranging from substantial growth rates (e.g., 100%) to deep declines (e.g., -56.8%, -86.629%). Generally, a consistent dividend growth rate indicates financial health and dependable returns, but the extreme fluctuations hint at either operational swings, market conditions, or one-off events affecting payouts. Despite volatility, the aggregate average well surpasses the 5% benchmark, marking a positive overall trend. However, investors must carefully consider these oscillations regarding Chevron's sustainability and stability in dividends. The pronounced peaks and valleys suggest they need to scrutinize Chevron's precise policies and ability to smoothen these cycles for future predictability.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain the significance of an average payout ratio lower than 65% for Chevron (CVX).

Chevron's historical payout ratios have shown fluctuation, especially notable during periods of extraordinary earnings volatility. Specifically, years exhibiting payout ratios well above 65% (2019 showing 308.51% and 2020 showing 612.89%) reflect extraordinary circumstances impacting company payouts. Despite these anomalies, the overall average payout ratio stands at approximately 21.88%. Given that this average is considerably below the 65% threshold, it signals prudent dividend management. This is generally a positive indicator, suggesting Chevron maintains a sustainable balance between rewarding shareholders and retaining earnings for future investments and cushioning against market volatility. From an investor's perspective, this trend is reassuring, demonstrating financial stability and responsible capital allocation.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings per share means that the company is generating sufficient profits to sustain its dividend payments. This is important as it indicates financial health and sustainability of dividend payouts.

Analyzing the data from 2003 to 2023 for Chevron (CVX), we observe fluctuations in the ratio of dividends covered by earnings per share. In certain years, particularly 2018 and 2021, EPS significantly covered the dividend per share, with values of 3.085 and 6.128, respectively, indicating strong financial performance and the ability to maintain and possibly increase dividend payouts. However, in years like 2020 and 2016, negative EPS values (-2.964 and -3.482) show that the company did not generate sufficient earnings to cover the dividends, raising concerns about financial health during those periods. Generally, while there are good years showing robust EPS to cover dividends, the inconsistency and occasional negative figures highlight potential volatility. This trend is mixed and suggests the need for careful monitoring by investors.

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow is an important indicator of a company's ability to sustain dividend payments. It is typically computed by dividing Free Cash Flow (FCF) by the Dividend Payout Amount. Higher coverage ratio values suggest that the company has sufficient cash flow to cover its dividends, indicating financial stability and reliability in continuing dividend payments. Low or negative values can be a warning sign for potential dividend cuts.

Chevron's dividend coverage ratio has seen substantial fluctuations over the given period. Notably, the free cash flow was zero for many years, peaking dramatically in recent years. For example, in 2018, the ratio was as high as 5.83, indicating very strong coverage. However, in some years like 2023 and 2019, the coverage was zero, revealing an inconsistency. Despite high and sufficient coverage ratios in some years, the inconsistency and zero values in some years may signal potential risks in relying on Chevron's dividend payments. The strong years do offer a cushion, but stakeholders should observe such trends critically.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends reflect a company's financial stability and management's commitment to returning value to shareholders. A drop of more than 20% is seen as a negative sign.

Examining Chevron's dividend per share over the past 20 years, there are instances where the dividend appears volatile with several abrupt increases and decreases. However, it's important to note that some of these fluctuations might be due to stock splits or special circumstances. For example, between 2010 and 2011, the dividend surged dramatically from $2.16 to $6.18 and again in the same year to $3.09. Similar patterns appear in subsequent years. Despite these seemingly drastic percentage changes, none represent a drop of more than 20% year on year. Therefore, while the dividend per share values vary significantly, Chevron has maintained a stable commitment to its dividend payments, which indicates good prospects for income-seeking investors. This trend, if contextualized by stock splits or special dividends, would still be considered a good sign for long-term financial health and shareholder value.

Dividends Paid for Over 25 Years?

A company's history of paying dividends for over 25 years is crucial because it demonstrates stability, reliability, and a commitment to shareholder returns. It reflects the company's ability to generate consistent cash flow and reinforces investor trust.

Chevron (CVX) has shown a compelling streak of dividend payouts stretching across more than 25 years, as evidenced by the consistent annual dividends paid out from 1998 to 2023. For instance, in 1998, Chevron paid $1.22 per share in dividends, and this figure has progressively increased over the years, hitting $6.04 per share in 2023. This trajectory is noteworthy as the upper trend signifies the company’s robust profitability and shareholder-friendly policies. This history of uninterrupted dividends is a positive indicator, portraying Chevron as a stable and mature entity capable of sustaining its dividend obligations even amidst economic fluctuations. Additionally, an increase in the dividend amount most years reflects the company's strengthening financial health and its success in consistently generating strong cash flows. Consequently, this long-term payment history fosters investor confidence and signifies a strong commitment to rewarding shareholders, cementing Chevron's status as a reliable dividend-paying stock. This trend is an excellent sign positively reflecting on Chevron’s financial discipline and stability.

Reliable Stock Repurchases Over the Past 20 Years?

Explanation of the importance of reliable stock repurchases over the past 20 years for Chevron (CVX)

Reliable stock repurchases indicate a company is consistently returning value to its shareholders and is confident in its own future performance. It stabilizes the Earnings Per Share (EPS) and can be an indicator of strong and effective capital management.