Coca-Cola Serves as a Prolific Source of Passive Income, Yet This Fuel-Providing Stock Also Earmarks Over $11 Billion in Dividends by Year's End, Intending to Deliver Such Returns.
Chevron (CVX) has experienced a 5.5% surge in share price since disclosing its Q3 2024 earnings on Nov. 1. The multinational oil and gas corporation continues to excel, with profitability and shareholder rewards through a blend of buybacks and dividends.
The analyst prediction for Chevron's 2024 dividend payout stands at approximately $11.8 billion. This figure exceeds the estimated dividends of renowned passive income provider, Coca-Cola, expected to be around $8 billion in 2024.
Here's why Chevron is an attractive dividend stock option at present.
Navigating market ups and downs
Large international energy conglomerates have no influence over oil and gas prices, but they can optimize their portfolios to ensure profitable operations even within price fluctuations. Chevron has successfully implemented this strategy.
On its Q3 2024 earnings call, Chevron confirmed that more than 75% of its facilities can sustain profitability under $50 per barrel. This is significant considering that the average price for West Texas Intermediate (WTI) crude oil in 2023 was $77.58 per barrel, with the lowest point during 2020 still averaging $39.16 per barrel. Constructing a portfolio around a $50 oil price level provides a robust margin of error for success amidst fluctuating oil prices.
In its Q3 2024 earnings announcement, Chevron mentioned asset sales in Canada, Congo, and Alaska as part of its strategy to sell $10 billion to $15 billion worth of assets by 2026. Additional structural changes are expected to decrease costs by $2 billion to $3 billion between 2024 and 2026. Consequently, Chevron's break-even point may further decrease in the near future.
During the most recent quarter, Chevron boosted its global net oil equivalent production by 7% due to increased output in the U.S. and Permian Basin. This increased production helped offset the reduction in oil and gas prices, with Chevron's upstream earnings only declining 20% compared to Q3 2023. Total earnings came in at $2.48 per share compared to $3.48 per share in the same quarter a year prior, predominantly due to a significant slowdown in Chevron's downstream activities.
Despite this, Chevron's free cash flow (FCF) for the first three quarters of 2024 was $10.7 billion, compared to $11.7 billion during the corresponding period in 2023. Chevron's capacity to generate substantial earnings and FCF even in a mid-price environment highlights its strong upstream portfolio.
Shareholder rewards
Chevron's earnings took a hit during the COVID-19-induced downturn, resulting in a net loss of $5.54 billion in 2020. Despite this, Chevron managed to payout a dividend and even increase its payout for the 37th consecutive year.
Chevron was able to satisfy its shareholders despite the challenging year due to its robust balance sheet. As the oil and gas industry recovered, Chevron leveraged its substantial profits to further reward shareholders through share buybacks and dividends, as well as having sufficient resources to pay down debt. Over the last three years, Chevron decreased its share count by 6.9% and increased its dividend by 21.6%. As of the third quarter of 2024, Chevron's net debt ratio stood at 11.9%, which was higher than 8.1% in Q3 2023 due to increased spending. However, the leverage ratio remains at a healthy level. Chevron's net debt ratio indicates the company's debt levels, net of cash reserves. Lower net debt ratios imply a lesser dependency on debt.
Chevron stock offers passive income potential
Given the cyclical oil and gas industry, it's unusual to find a financially stable company with a clear path for future earnings growth, a consistent and dependable dividend, and a compelling yield. Chevron fulfills these criteria. Its 4.2% dividend yield surpasses the S&P 500 average of 1.2%. Chevron is also an affordably priced investment. With a conservative outlook, it is anticipated that Chevron will surpass $10 in earnings per share in 2024, resulting in a price-to-earnings ratio of less than 16. This is attractive, considering Chevron operates within an oil and gas market that is not overly beneficial.
In summary, Chevron continues to be a viable investment opportunity and an effective means of enhancing your passive income stream.
Chevron's robust financial performance and strategic decisions have attracted the attention of investors seeking passive income. With the expectation of surpassing $10 in earnings per share in 2024, Chevron's dividend yield of 4.2% exceeds the average yield of the S&P 500, making it an attractive choice for income-focused investors that are interested in dividend stocks. By optimizing its portfolio and implementing cost-saving measures, Chevron is able to generate substantial earnings and free cash flow, even in a mid-price environment, further demonstrating its strength in the finance and investing world.
