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Chemron’s Strong Investment Position Amid Rising Oil Production
Chevron (NYSE: CVX) remains a significant holding in Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Buffett’s firm owns 6.8% of Chevron’s outstanding shares, totaling 118.6 million shares worth approximately $16.7 billion. This stake makes Chevron Berkshire’s fifth-largest investment, constituting 5.8% of its investment portfolio.
One of the key aspects of Chemron’s attractiveness is its robust dividend yield. Buffett’s Berkshire Hathaway is poised to earn over $800 million in dividend income from Chevron this year.
A High-Quality, High-Yielding Payout
Chevron pays its investors $1.71 per share each quarter, equating to an annualized dividend of $6.84. With Chevron’s stock recently trading in the low $140s, this translates to a 4.9% dividend yield, significantly higher than the S&P 500’s average yield of around 1.3%.
The company’s substantial payout is supported by a resilient business model. Despite the volatility in oil prices, Chevron’s low-cost portfolio enables it to maintain a break-even level of about $30 a barrel— the lowest in the industry. Currently, with crude oil prices in the $60s, Chevron generates enough cash to sustain its dividend payments and capital expenditures comfortably.
Additionally, Chevron boasts a formidable balance sheet. At the end of the first quarter, it reported a net debt ratio of 14%, well below its target range of 20% to 25%. This strong financial standing allows Chevron to invest in growth and continue returning cash to shareholders, even during periods of lower oil prices.
The durability of Chevron’s dividend over decades is noteworthy. “We’ve grown our dividend for 38 consecutive years, through multiple commodity cycles,” stated CFO Eimear Bonner during the company’s first-quarter earnings conference call. This performance positions Chevron as a leader in dividend growth among its peers.
Built for Continued Growth
Going forward, Chevron is poised to enhance its dividend growth. The company anticipates increasing its oil and gas production at an estimated 6% compound annual rate through next year, driven by key projects in the Gulf of Mexico, the Permian Basin, and Kazakhstan. Chevron projects that investments in these high-margin areas could add around $9 billion in free cash flow by next year if oil prices hold at $60.
Looking even further ahead, Chevron has ample opportunities for production growth in the Permian, Gulf, and Eastern Mediterranean regions. CEO Mike Wirth emphasized the company’s intent to expand its pipeline of future opportunities, noting the addition of over 11 million net exploration acres since last year. This strategic move aims to find new oil and gas sources while also advancing solutions for clean energy, including a natural gas power initiative to supply U.S. data centers.
Additonally, Chevron is actively venturing into lower-carbon energy sectors, focusing on renewable fuels, hydrogen, and carbon capture technologies. These efforts are designed to support Chevron’s sustainable growth as it aims to provide lower-carbon energy globally.
Lastly, Chevron is in the process of closing its acquisition of Hess. The company is set to face Exxon in arbitration regarding Hess’ stake in Exxon’s Stabroek oilfield offshore Guyana later this month. Chevron’s confidence in winning the arbitration is reflected in its recent purchase of nearly 5% of Hess’ outstanding shares. Successfully closing this acquisition would significantly enhance and expand Chevron’s portfolio.
“`# Chevron: Strong Dividend and Growth Potential Ahead
Chevron’s growth drivers position the company for continued cash flow and dividend increases in the coming years. Analysts are optimistic about the firm’s production and free cash flow expansion, which are expected to extend into the 2030s.
Attractive Dividend Yield
Chevron offers a high-yield dividend supported by a robust business model and financial stability. Given its promising growth trajectory, the oil company’s dividend is likely to keep rising in the future.
Is Chevron a Good Investment for You?
Before investing $1,000 in Chevron, it’s important to consider this:
The Motley Fool analyst team has recently identified what they believe are the 10 best stocks for investors right now, and Chevron is not listed among them. The stocks that made the list are projected to yield significant returns in the upcoming years.
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Matt DiLallo has positions in Berkshire Hathaway and Chevron, while The Motley Fool also recommends these stocks. For a comprehensive disclosure policy, please refer to the [Motley Fool](https://www.pivotandflowdaily.com).
The views expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.
