CVX Stock: Is It Time to Dump Chevron Corporation?

CVX StockGood Reasons to Like CVX Stock

The recent market swoon has clobbered stocks and no sector has felt the pain more than energy. Over the past three months, Chevron Corporation (NYSE:CVX) stock, one of the country’s largest oil producers, has plunged nearly 10%.

Is it time to throw in the towel? Hardly. If you believe in buying wonderful businesses when their shares are on sale, then California-based Chevron may be worth a look. Here’s why

1. Growth, Growth, GROWTH

When it comes to “Big Oil” companies, the majority of their earnings come from the actual production of oil and gas, otherwise known as the upstream side of the business. Chevron is no exception.

The company has plenty of opportunities available to it. Chevron’s business empire stretches from North America to Western Africa and across the entire Asia-Pacific. This has allowed the oil giant to add approximately 1.02 billion barrels of net oil equivalent to its roster in 2015. (Source: “Chevron Reports Fourth Quarter Loss of $588 Million And 2015 Earnings of $4.6 Billion,” Chevron Investor Relations, January 29, 2016.)


All of this gives Chevron plenty of room to ramp up output. As any armchair equity analyst could tell you, more barrels sold equals more cash flow.

2. Lucrative Dividends

Most of that cash flow is passed on to shareholders. CVX stock has increased its dividend payments for 28 straight years. As of late, it’s paying out approximately $8.0 billion per year to shareholders. Today, the stock yields more than five percent.

However, that streak may be coming to an end. With oil prices hovering just over $30.00 per barrel, the company is unlikely to find extra cash for dividend hikes any time soon. But with Treasuries yielding little more than one percent, the hearty payout on Chevron stock looks appetizing.

3. Reasonable Price

Warren Buffett once said “be greedy when others are fearful, and fearful when others are greedy.” Thanks to growing uncertainty in the oil patch, Wall Street is terrified of energy stocks right now—which means it may be time for investors to be greedy.

Today, Chevron’s enterprise value (the value of the entire company including debt and equity) is only seven times the company’s earnings before interest, taxes, depreciation, and amortization. This is a steep discount to the firm’s peers and historical average.

The bottom line: Chevron still offers growing cash flows, a healthy dividend, and a reasonable valuation. With the panic in the oil patch, there has never been a better time to scoop up CVX stock on the cheap.