My Perfect Dividend Portfolio - Chevron
Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This is part nine of a ten-part series, which began in December, 2012. You can see Part One here, Abbott Laboratories; Part Two, PartnerRe Limited; Part Three, Enterprise Products Partners; Part Four, Cracker Barrel Old Country Store; Part Five, Meredith Corp; Part Six, Lockheed Martin; Part Seven, Sunoco Logistics Partners; Part Eight, Williams Companies; and Part Nine, Leggett & Platt.
I began constructing my Perfect Dividend Portfolio in December after studying and analyzing dividend stocks for approximately six months.
Over the last several months, I have examined hundreds of companies that pay dividends, but I have had trouble locating companies that I feel are worthy of being included in my Perfect Dividend Portfolio. I have analyzed, and rejected, dozens of stocks.
When I conduct my analysis, I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year dividend growth rate (DGR), 5-year projected earnings growth rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.
I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories.
I finally decided to include Chevron (NYSE: CVX), which scored 18 points on my system. It has been hovering in the 16-17 point range for months, and this time it finally gained the extra point necessary to assure inclusion in my portfolio.
Chevron is a company in the oil and gas industry. It is not as large as Exxon Mobil (NYSE: XOM), nor does it have the bad reputation of BP (NYSE: BP). In fact, it’s rather a middle-of-the-road company in terms of the energy industry; it’s the fourth largest in terms of sales, the second largest in terms of market cap, third largest in terms of number of employees, and third largest in revenues.
In terms of its potential as a dividend-generating stock, I look at the current dividend metrics. Chevron’s yield is 3.1% and it has a 19-year history of consistently paying and raising dividends. The last dividend increase was in May, 2012, and was an increase of 11% over the previous quarter’s distribution. The company tends to raise dividends at least once per year, so an increase may be coming soon. First quarter 2013 earnings are due on April 26. Speculation is that the new dividend will be 5 to 10% higher.
The company’s 5-year DGR is 9.2%, and its dividend payout ratio is an incredibly low 27%. One could wish that Chevron hike their dividend a bit more and bring their payout ratio into the 35-40% range, and their dividend into the 3.5% range.
Future Earnings Metrics
In terms of future earnings growth, the 5-year EGR as estimated by the 24 professional analysts who cover the company is significantly disappointing, at 1.9%; they are actually forecasting a drop in earnings of 2% for 2013 and only a tiny increase for 2014. 1Q13 earnings will be reported on April 26.
The company has a TTM PE of 8.9 based on today’s price of approximately $118. This is lower than both BP and Exxon Mobil. Chevron has a total twelve-month return of 15.9%. It is currently trading at 2.5% off its 52-week high.
The Motley Fool community rates CVX a five-star CAPS pick, with 4,108 Bulls and 161 Bears (96% positive sentiment). The 24 professional analysts who cover the company rank it a 2.1 (1.0 = Strong Buy, 5.0 = Sell) with six Strong Buys, 10 Buys, seven Holds and one Underperform. They have assigned a one-year average target price of $126.35, which is a potential gain of 7%.
For competitors, I turned to Exxon Mobil, which is currently trading around $89 per share and yields 2.6%. The company has been paying and raising dividends for 30 years, the 5-year DGR is 10.4%, and the PE is 9.2.
The total return over the past twelve months is 7.1%, and its 52-week high is $93.67, which was reached in October. Exxon Mobil scores a 15 using my ranking system, and its yield is too low for my consideration.
I also examined BP, which is currently trading at $42 per share and yields 5.2%. The company has been paying and raising dividends for only two years, because it stopped paying dividends for three quarters in 2009 and resumed paying in 2010 at only half the dividend that was paid in 2008.
Chevron has many strengths, including good historical dividend growth, a low payout rate, and a low PE.
It is now the tenth stock in my Perfect Dividend Portfolio.
I will begin tracking it based on the closing price on the day that this article is syndicated.
Karin Hernandez has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!