One of the leading companies in the oil and gas industry, Chevron Corporation (NYSE: CVX) has been a headliner since the company reported earnings of $6.3 billion for the first quarter 2022, compared with $1.4 billion in the first quarter 2021. Included in the current quarter were pension settlement costs of $66 million. Foreign currency effects decreased earnings by $218 million. Adjusted earnings of $6.5 billion in first quarter 2022 compares to adjusted earnings of $1.7 billion in first quarter 2021.
Despite its recent highs, Chevron's stock price has started creeping down. The President has also asked Congress to suspend the federal gasoline tax for the next three months as fears of a recession have sent oil prices tumbling. Brent crude was down 4% and has hurt investor sentiment, which could continue to send oil prices even lower.
Combined with these complicated underlying factors, does the downturn in Chevron's stock price mean that you should buy? Let's take a look at why it might be one of the best growth and dividend stock buys for your portfolio.
Chevron Corporation, headquartered in San Ramon, California, operates in worldwide integrated energy and chemicals segments, including a couple of main segments:
- Upstream segment: Crude oil and natural gas exploration, development, production and transportation and liquified natural gas processing, liquefaction, transportation, and regasification. This segment also transports crude oil through pipelines as well as transports, stores, and markets natural gas and a gas-to-liquids plant.
- Downstream segment: The downstream segment refines crude oil into petroleum products and markets crude oil and refined products and lubricants, manufactures and markets renewable fuels, transports crude oil and refined products by pipeline. It also manufactures and markets commodity petrochemicals, plastics and fuel and lubricant additives. It also manages cash management and debt financing activities, insurance operations, real estate activities and technology businesses.
Chevron was created as Pacific Coast Oil Co. on September 10, 1879. It was bought in 1900 by the Standard Oil Co. & Trust, which controlled all oil production, processing, marketing and transportation in the United States at one time. Standard Oil of California later became an independent company. In 1984, the company bought Gulf Corp. for $13.3 billion, which was the largest corporate deal in history, and changed its name to Chevron.
In 2001, it merged with Texaco, changing its name to Chevron Texaco Corp. but by 2005 had dropped the name "Texaco."
In 2013, Chevron's revenue grew more than Warren Buffett’s Berkshire Hathaway Inc., Apple Inc. and General Motors Co., only straggling behind retailer Wal-Mart Inc. and its rival, Exxon Mobil Corp.
By 2021, shares of Chevron Corporation trended down after OPEC+ announced the changes in production curbs.
Pros and Cons of Buying Chevron
Naturally, Chevron is heavily tied to oil prices, which could be a good thing or a bad thing, depending on where the sector goes. When oil downturns occur, cash flows suffer and could lead to dividend cuts. On the opposite end of the spectrum, when oil prices are going gangbusters, Chevron's dividend isn't in danger by a long stretch. Let's take a look at both the pros and cons of buying Chevron.
- Robust dividends: Chevron is known for its fleshy dividend payouts. Currently, the company offers a 4.08% dividend yield and $5.68 annual dividend. It puts its shareholders front and center in that it puts investing in its company second after the dividend. Investors can usually count on CVX to pay out due to higher cash flows and dependable earnings.
- Soaring oil prices: Oil prices rose in the first quarter to well over $100 a barrel from below $72 at the end of 2021. Chevron and Exxon Mobil (NYSE: XOM) both reported robust earnings for the quarter ended in March.
- Continued domestic growth: Chevron has tried to grow domestic supply with U.S. oil and gas production up 10% over the first quarter last year. Chevron’s worldwide net oil equivalent production in the first quarter was 3.06 million barrels per day. Permian Basin unconventional production grew to a record 692,000 barrels of oil equivalent per day in the first quarter and the company raised its guidance to 700,000 to 750,000 barrels per day, a 15% percent increase over 2021.
- Developments in ESG (environmental, social, governance): Chevron has made attempts to grow its renewable fuels business starting with the acquisition of Renewable Energy Group, Inc. It has also signed agreements with Bunge North America, Inc. and will grow its hydrogen, carbon capture and offsets businesses. It has built out agreements with Iwatani Corporation of America to build fueling stations and has plans to invest in Carbon Clean, a global leader in cost-effective industrial carbon capture. It also has agreements with the Restore the Earth Foundation Inc. on a carbon offsets reforestation project of up to 8,800 acres in Louisiana.
- Limited energy sources: The company uses both wind and solar energy to power parts of the company, but it's unlikely to dive into wind and solar as a main driver of the business, though it will continue to invest in hydrogen and carbon capture.
- Legal battles: Buying another oil company’s assets also means taking on legal battles. Chevron continues to defend itself in a long-running legal case in Ecuador alleging environmental and social harm. Chevron inherited the case when it acquired Texaco. The multi-billion dollar suit was the result of a class-action lawsuit brought against Texaco by 30,000 Indigenous people and local farmers. Texaco (purchased by Chevron in 2000) had dumped millions of gallons of crude oil throughout the region, resulting in toxic waste from drilling and refining affecting the soil and water supply.
- General unpopularity: The oil industry isn't exactly the most popular industry. It regularly comes under political and social pressures. Biden blasted oil companies for making record profits due to pressure over record gasoline prices. Inflation is a top voter concern, what with November elections ahead and control of Congress at stake. It's easy for companies like Chevron to get embroiled in policy matters ranging from leases and permits on federal lands, infrastructure and regulations.
Learn more: Dividend Stocks to Hold Forever
Verdict on Chevron Corporation Stock
There are good reasons to purchase Chevron. Its strong assets and full-of-juice dividends may look tantalizing to a long-term investor looking for a blue-chip stock. However, it's worth considering the indicators of what might happen with oil prices. If crude keeps rising, Chevron can return more to investors. If crude prices cool off, Chevron's stock could continue to trend downward and it's a question about whether Chevron will have success over the long term and amid the current and future political and social climate.
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Companies Mentioned in This Article:
|Consensus Price Target
|Exxon Mobil (XOM)