The price of Chevron (NYSE:CVX) has become as a source of frustration. Chevron stock has remained range-bound since early 2018. Moreover, the CVX stock price still has yet to rise above its 2014 peak.
The long-term track record of Chevron indicates that the stock will eventually rise. The question hinges on how to invest in CVX profitably. By focusing on income, investors can profit regardless of where oil trades.
I believe Chevron stock can rise above the $135 per share ceiling, eventually. Still, long-term holders of Chevron stock have faced years of frustration. Chevron peaked at just over $135 per share in July of 2014. Soon after, oil prices crashed, taking CVX below $75 per share by the fall of 2015. It made it back to a high of almost $134 per share by early 2018 and has remained range-bound since that time.
A Closer Look at Chevron
My more recent recommendation on Chevron stock led to a similar experience. Back in early November, I said that investors should buy Chevron stock after earnings when it traded at about $114 per share.
Those who followed my advice hold a profit of around 4%. However, this happened only after suffering through a massive drop in December and the subsequent recovery. Chevron trades at around $119 per share at the time of this writing.
This frustration continued through the attempt to buy Anadarko Petroleum (NYSE:APC) this spring. Chevron stock peaked at $128.55 per share right before the company announced its intention to take over Anadarko in April. It abandoned the deal after Occidental Petroleum (NYSE:OXY) placed a higher bid for Anadarko’s assets. Though CVX moved higher after ending its bid on Anadarko, it soon gave back those gains.
Think Longer Term
Still, those frustrated by CVX’s short-term movements can take some comfort from the longer-term outlook. CVX holds one advantage over these oil drillers. Like its peer Exxon (NYSE:XOM), Chevron remains a diversified oil company. Unlike Anadarko, it does not depend on higher oil prices to survive. However, it will need higher oil prices to break through the price ceiling.
If the last five years serve as an indication, oil prices fluctuate wildly. Whether or not CVX meets its profit projections will depend on how where oil trades.
Moreover, the forward price-to-earnings (PE) ratio stands at about 13.3. Analysts forecast a 3.1% decline in profits this year. However, for next year, they predict an 18.8% increase next year and higher increase beyond. Given that fact, the 13.3 PE ratio looks quite cheap. Furthermore, the CVX stock price could rise if the profit growth leads to multiple expansion.
The good news is that in low or high-price environments, Chevron stock continues to deliver profits, and payout hikes. Hence, I think dividends should remain the focus of Chevron stock investors.
This year’s annual dividend of $4.76 per share yields almost 4%. It has risen every year for 33 straight years. With profit growth resuming next year, I see nothing that will threaten this dividend streak from going several years longer. Best of all, by focusing on the payout, investors can see gains from the dividend, and longer term, in a higher stock price.
The Bottom Line on Chevron Stock
Focusing on income helps investors deal with the frustration of Chevron stock. CVX remains range-bound as it tends to fall back whenever it approaches the highs it first saw in 2014. Setbacks such as abandoning the Anadarko deal have also contributed to the exasperation.
However, one consistent growth area in Chevron stock revolves around the dividend. It has increased every year in both good times and bad. Also, given rising profits, CVX should continue to benefit from annual hikes whether or not it stays in the current range.
Best of all, these earnings should eventually take Chevron above $135 per share. By exercising patience, investors can see Chevron become the income source, and eventually, the growth play for which they hope.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.