When choosing which stocks to buy, it is important to look at the pros and cons of investing in a company and to consider what you will get out of it in the short-term and long-term. While making money in the short-term is of the most importance to some investors, it makes sense to also include some solid long-term options in your portfolio. There are many companies that are fantastic in terms of solid long-term investment, and one of these is Chevron (NYSE: CVX). Here are just some of the reasons why Chevron is a solid dividend stock for years to come.
Chevron is a multinational energy corporation that is headquartered in San Ramon, California. It is one of the successor companies of Standard Oil, and it is active in more than 180 countries across the globe.
According to The Motley Fool, two of the main reasons that this is a solid dividend stock is the current growth of the business and its future plans. In the first quarter of 2019, production at Chevron was up by seven percent year over year. This growth was driven by continued strength in the onshore United States Space and by the Australian facility Wheatstone LNG. While this may seem a positive feature of the company only in the short-term, this growth is not a one-off event. Chevron has continuously shown good growth and the future plans of the business suggest that this growth will continue. To ensure that the business continues to grow, Chevron is planning to reinvest $20 billion a year until 2023 to support further growth and development.
Of course, for most investors, the primary concern is the dividend yield they can expect in the long-term. According to Simply Wall Street, Chevron is a robust dividend payer and this makes it a worthwhile investment. Looking back over the last decade, Chevron has consistently increased its dividend payouts to investors, and it has reached a dividend yield of 3.8 percent. In terms of dividend payouts, this yield makes it one of the best dividend companies on the market now. Even when there was a downturn in the oil market in mid-2014, Chevron chose not to cut its dividend payouts to shareholders. The current yield of around four percent is towards the high-end of Chevron’s yield range since the turn of the century. Therefore, now is a good time to take a closer look at Chevron and consider adding it to your long-term dividend stock portfolio.
Simply Wall Street also notes that Chevron is a financially robust company. It has an ample cash flow to cover both short-term investments and upcoming liabilities. This is also a sign that there is proper cash management in place and is an indicator of the good financial health of the company. Chevron has also used debt to their advantage by producing operating cash levels at a good percentage of the total debt in the last year. In fact, Chevron has one of the best balance sheets in the industry as only around 15 percent of its capital structure is made up of long-term debt. Even if there is another slump in oil prices, the balance sheets show that there is enough flexibility financially to continue to support the business. A further factor that supports the argument that Chevron is a solid dividend stock investment in the long-term is the company’s diversification. Despite the company being tilted towards gas and oil drilling, the business also spans pipelines, chemicals, and refining. This diversification makes the business more stable. If the oil and gas drilling sector of the business suffers, then it benefits the chemicals and refining sectors. At the same time, the pipelines sector tends to remain steady and consistent.
Nasdaq notes that consistency in the oil and gas industries is another element that makes Chevron a good long-term dividend stock. While many industries see great fluctuations, the consistent demand for oil and gas across the globe holds Chevron steady. Therefore, it is in a better position than companies in many other segments. Looking at the future performance of a company is essential if you are planning to make a long-term investment, and financial analysts seem to think that Chevron will remain a good option for many years to come, says Barron’s. Analysts are looking beyond 2020 to how the company will perform in the future.
According to experts, Chevron will achieve free-cash-flow-growth between 2021 and 2024 thanks to the company raising its capex range by around 10 percent, which is the equivalent to approximately $2 billion. From the perspective of investors, this spend is positive as is will allow for continued dividend growth and share repurchases.
It is also worth noting that Chevron has continuously outpaced the rest of the Energy Select Sector SPDR each year for four years consecutively. This means that although the stock may have underperformed in recent months, this is only a temporary situation and investors can expect a turnaround in this situation. Furthermore, it is worth noting that in 2018, Chevron achieved its highest free-cash-flow yield since 2007 as it reached 7.6 percent. This supports the argument of some financial experts that the dividend yield is a less important metric on which to rank the company than its free-cash-flow.
Overall, each of these factors makes Chevron an option worth considering. It is the general opinion of experts that this is a good dividend stock investment for those who are looking for a dividend stock that can deliver in the long-term. The signs are all good that you would continue to reap the rewards for your investment in the years to come. Therefore, it is certainly one to consider adding to your portfolio if you want a mix of high-yield short-term stocks and some solid long-term dividend stocks.