1 Top Dividend Stock to Buy With $1,000

Chevron Corporation boasts an impressive record of consistent dividend growth which is, no doubt, an important factor in Warren Buffett’s decision to jump on board it.

Chevron Corporation (NYSE:CVX) is an integrated oil and gas giant that pays out a quarterly dividend of $1.63 per share, which translates to a 4.38% yield.

Chevron has a remarkable 36 history of consecutively increasing dividend payouts, signaling both its stability and commitment to reward shareholders. And with a $277 billion market capitalization, Chevron is among the largest energy companies globally.

The oil and gas giant has been gaining momentum after beating the consensus EPS estimate for the fourth quarter of 2023 by 7.3% and disclosing higher production targets for 2024.

Shareholders Are Being Spoiled

Chevron handsomely rewarded its shareholders in 2023. The oil major returned $26.3 billion to shareholders, which comprised $11.3 billion in dividends (3% higher than in 2022) and $14.9 billion in share repurchases (32% higher than the prior year). It also announced a 7.9% increase in its quarterly dividend to $1.63 per share. 

Almost 10% of its market capitalization was returned to shareholders last year. The company is expected to continue to deliver above-average dividend growth this year as well.

According to CEO Mike Wirth, the enterprise returned more cash to shareholders and produced more oil and natural gas than any year in the company’s history.

Over the past five years, Chevron’s dividend has increased at a compounded annual growth rate of 6%, more than double the rate of the closest integrated peer.

Millions of Barrels of Oil Flowing

Chevron achieved record production of 3.1 million oil-equivalent barrels per day in 2023, primarily driven by 14% growth in the U.S., and fueled by increased capital expenditures.

Notably, production in the Permian Basin hit a record high of 860,000 barrels per day and is expected to reach 1 million barrels per day by 2025. However, international production experienced a decline of 25,000 barrels per day due to typical field declines.

In 2023, Chevron added approximately 980 million barrels of net oil-equivalent proved reserves, representing 86% of the net oil-equivalent production for the year, pending final reviews. The largest additions were attributed to acquisitions in the U.S. and discoveries in the Permian Basin.

Management anticipates a 10% increase in output in the Permian Basin, the premier U.S. shale field, reaching approximately 860,000 barrels per day. Globally, they forecast a 4% to 7% increase in output to 3.25 million barrels of oil and gas per day.

The company’s intensified investments in the U.S. propelled full-year capital spending up by 32% to $15.8 billion, including approximately $450 million directed toward PDC assets, contributing 266,000 barrels per day of oil and gas production during the last quarter.

Billions of Reasons To Be Optimistic

Chevron has raised its planned capital expenditure for the current year after its rival Exxon Mobil Corporation’s (NYSE:XOM) move in that direction. The company plans to allocate between $18.5 billion and $19.5 billion toward new oil and gas projects, up from $17 billion in 2023.  

The company is strategically focused on bolstering its portfolio with traditional and new energy acquisitions to meet the escalating demand for affordable, reliable, and cleaner energy sources.

In addition to potential benefits from higher oil prices, Chevron’s acquisition of Hess Corporation for $53 billion is expected to yield positive results this year, providing access to Guyana’s lucrative offshore fields. CVX completed a deal for PDC Energy that boosted its U.S. production last year.

Upon closing the Hess deal, Chevron intends to elevate share repurchases by $2.5 billion, reaching the upper end of its guidance range of $20 billion per year. Moreover, the company aims to optimize its asset portfolio, targeting $10 to $15 billion in before-tax proceeds from asset sales through 2028 while maintaining a double-digit return on capital employed (ROCE) at mid-cycle prices.

Chevron’s high-return production growth supports its commitment to increasing shareholder distributions, with anticipated annual free cash flow growth exceeding 10% at $60 Brent through 2027.

Moreover, CEO Michael Wirth emphasized the robustness of the company’s balance sheet and indicated that the company is well-positioned to maintain its dividends and capital spending, even when oil prices hover around $50 a barrel.

How Optimistic Are Analysts About Chevron Stock?

Goldman Sachs analyst Neil Mehta reaffirmed a buy rating on the stock, setting a price target of $180. Mehta emphasized the positive update provided by management regarding the Tengizchevroil (TCO) expansion project in Kazakhstan.

Although share repurchases in the first quarter of 2024 might be constrained due to the Hess deal, Mehta maintains a bullish outlook on Chevron’s capital returns profile, anticipating approximately $29.3 billion in returns for 2024/2025, constituting around a 10% yield compared to the U.S. major peer average of approximately 8%.

Also, Mehta expresses optimism about the company’s expected increase in upstream volume and cash flow by 2025 as the TCO project progresses.

Moreover, out of the 18 analysts providing ratings, 11 suggested buying it, while 7 advised holding the stock. The average price target of $178.05 per share indicates a potential upside of 19.8%.

Is Chevron a Good Dividend Stock to Own? 

Chevron is a good dividend stock to own with a 36 consecutive years of payouts, a 4.38% dividend yield and 53% payout ratio.

The company has a long-standing tradition of consistently paying dividends, showcasing its financial stability and dedication to delivering value to shareholders. The history of increasing dividend payouts over time also reflects confidence in its future cash flows and earnings potential.

Additionally, CVX’s diversified operations across the global oil and gas industry provide resilience against economic downturns and commodity price fluctuations, which supports its ability to sustain dividends.

Despite experiencing volatility last year, the stock holds considerable upward potential and may well reach new record highs, particularly if oil prices rise.

Particularly noteworthy is Berkshire Hathaway’s recent 13F filing for the fourth quarter of 2023, which reveals an increase in CVX’s stake within Berkshire’s equity portfolio, marking a substantial 14.4% rise in share count.

Given its augmented cash flow and reliable dividend payouts, Chevron offers compelling reasons to buy, even if it’s with a modest initial outlay.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.