Chevron Corporation (NYSE:CVX) is the “little brother” to Exxon Mobil Corporation (NYSE:XOM), the second American major in the U.S. international oilpatch. The two companies are often compared, and CVX stock trades similarly to XOM.
So far in 2017, both are down about 10%; if you want to pick nits, Chevron is down 9.84% to Exxno’s 10.44%, so CVX is “winning.”
And while Chevron did release second-quarter earnings on Friday, the big news came out ahead of that — an announcement that the $1.08-per-share dividend would be retained, payable Sept. 11 to shareholders of record Aug. 18.
Chevron is strictly a dividend play, so its fall this year is a gift to income investors with new money to spend. The yield is up to 4.10%, and if earnings failed to hit the consensus figure of 89 cents per share, or the lower “whisper number” of 84 cents, on $32.65 billion in revenue, income investors could get an even better bargain.
As it was Chevron earned $1.5 billion, 77 cents per share, on revenue of $33 billion. Translation: Revenues topped estimates slightly, but profits were well short of estimates.
CVX stock, however, barely budged in response.
Chevron Turns Toward Oil Production
Like Exxon, Chevron isn’t completely dependent on the price of oil for its profit, as our Bret Kenwell wrote in considering, and rejecting, a short sale. The shares didn’t fall much as oil fell to $42 per barrel, and haven’t risen much as oil has gotten closer to $50 per barrel. That’s because Chevron, like Exxon, is an “integrated” oil company. It owns refineries and gas stations.
It doesn’t just pump crude.
During the second quarter, in fact, Chevron earned more from refining and marketing oil, $1.195 billion, than it did from oil and gas production, $893 million. The reaction to its miss justified Kenwell’s call not to make a move on the stock.
The balance in the company’s earnings, however, may soon change. Between “upstream” operations (drilling and production of oil and gas) and “downstream” operations (refining and marketing of oil and gas), CVX is moving upstream.
Chevron has the second largest position in the Permian Basin, 1.5 million acres, most of it owned outright, in some of the best fracking land in the world. Analysts were listening closely today on the company’s conference call to hear just how fast that acreage will be developed.
Permian production could reach 700,000 barrels per day in a few years, and it could maximize that value by spinning out a master limited partnership (MLP) focused on paying out profits directly as distributions.
Increased Permian production will be augmented with new production coming off Angola, where it has a 39% interest in production designed to reach 150,000 barrels per day. Meanwhile it is moving out of Bangladesh, dumping its geothermal assets in Indonesia, but ramping up production of natural gas in Australia.
Bottom Line on CVX Stock
All this means that while Chevron is not now as tied to oil prices as Exxon, that’s going to start changing soon. And if the current turn in prices is sustained, it might be able to out-earn that dividend, perhaps even increase it.
Our Nicholas Chahine was expecting this, as he told investors to “fill up” at the start of July. But, again, this is an income stock, not something you buy for growth. Keep that in mind.
All you want from Chevron is for it to keep paying that dividend. If the income is secure, you stay secure.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
