Chevron Corporation (NYSE:CVX) is up 13% in 2016 with three-quarters of the trading year complete. Despite this double-digit rise, however, Chevron stock still looks like a phenomenal bet for even more gains.
It’s a simple argument: Chevron is well-placed to ride a recovery in oil, and the Chevron dividend is among the best yields in both large-cap oil and the Dow Jones Industrial Average.
Oil stocks like CVX have rallied recently on the heels of major cuts to oil production being done as an attempt to increase the price per barrel. The Organization of the Petroleum Exporting Countries (OPEC) has pushed to cut production to boost the price of oil. Russia, who is not a member of OPEC, has discussed joining production cut plans as well.
OPEC wants to cut 700,000 barrels a day to a new daily output total ranging from 32.5 to 33 million barrels. The recent discussions sent the price of Brent crude oil to a year high of $53.75. That remains a long ways off from the $100 a barrel seen several years ago, but it still would be the first output reduction by OPEC in eight years.
And that still would do wonders for the well-being of Chevron stock and other oil equities.
Chevron Stock Will Recover From the Big Oil Dip
The decline in oil prices hit CVX and other oil equities, but that didn’t stop Chevron from operating with an eye to the future.
The company is in the middle of a large asset sale to strengthen its balance sheet and improve its margins in the era of $50-per-barrel oil. In 2015, Chevron sold $5.7 billion in assets. The goal for 2016 and 2017 is a combined $5 billion to $10 billion. Through the first six months of 2016, CVX had already sold $1.4 billion in assets.
Meanwhile, Chevron stock sports a dividend yield of 4.3% with an annual payout of $4.28 per share. That bests the yield of energy majors Exxon Mobil Corporation (NYSE:XOM) and ConocoPhillips (NYSE:COP), at 3.4% and 2.4%, respectively. And it makes CVX one of the highest-yielding companies in the Dow Jones Industrial Average. Chevron trails only Verizon Communications Inc. (NYSE:VZ) in that respect.
There’s also a very good chance that CVX will raise its dividend soon.
Chevron is a dividend aristocrat that has raised its payout every year for 28 straight years. While many have worried about Chevron’s ability to continue paying its high dividend through the low-oil-price environment, CVX’s payout has been among the most dependable in the industry.
During a presentation in September, Chevron listed to maintain and grow the dividend as a priority. This was the top-listed item along with goals of improving free cash flow, using the strong balance sheet to complete projects and growing operating margins.
Bottom Line on CVX Stock
Chevron’s dividend continues to be one of the biggest reasons to buy shares of CVX. Falling oil prices had many analysts questioning Chevron’s ability to keep paying. But oil’s recovery and Chevron’s asset sales have made a cut unlikely.
Plus, Chevron’s dedication to continuing its strong track record of growing dividends every year means a hike, even a small one, is highly probable.
Despite the double-digit gain for Chevron stock in 2016, more upside is on the way. A dividend hike — perhaps to be announced this Friday, as part of its earnings release — could send CVX shares higher. Also, the next OPEC meeting is in late November, which could answer more questions on oil production.
Expect Chevron stock to continue its strong momentum through the end of the year.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.
