Company Description: Chevron Corporation is a global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
CVX is trading at a discount to 1.) and 4.) above. When also considering the NPV MMA Differential, the stock is trading at a 73.0% premium to its calculated fair value of $56.99. CVX did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
CVX earned one Star in this section for 2.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1912 and has increased its dividend payments for 0 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $529 is below the $3,500 target I look for in a stock that has increased dividends as long as CVX has. The stock's current yield of 4.34% exceeds the 2.47% estimated 20-year average MMA rate.
Peers: The company's peer group includes: BP plc (BP) with a 5.8% yield, Exxon Mobil Corporation (XOM) with a 3.4% yield and ConocoPhillips (COP) with a 4.7% yield.
Conclusion: CVX did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks CVX as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $43.70 before CVX's NPV MMA Differential increased to the $3,500 minimum that I look for in a stock with no years of consecutive dividend increases. At that price the stock would yield 9.8%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $800 NPV MMA Differential, the calculated rate is 8.2%. This dividend growth rate is higher than the 0.0% used in this analysis, thus providing no margin of safety. CVX has a risk rating of 2.00 which classifies it as a Medium risk stock.
The company's free cash flow payout at -88% continues to be unfavorable. The stock is trading at a premium to my $56.99 calculated fair value. In April 2015 the company failed to raise its dividend, leaving the quarterly dividend at $1.07 per share for the fifth consecutive quarter. Failing to raise its dividend had a detrimental effect on the stock's fair value. Until I see improvement in the free cash flow payout and a dividend increase, I will not add to my position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in CVX (2.4% of my Dividend Growth Portfolio) and was also long in COP and XOM. See a list of all my dividend growth holdings here.
Related Articles:
- Realty Income Corp (O) Dividend Stock Analysis
- Duke Energy (DUK) Dividend Stock Analysis
- Occidental Petroleum Corporation (OXY) Dividend Stock Analysis
- Texas Instruments Inc. (TXN) Dividend Stock Analysis
- Exxon Mobil Corporation (XOM) Dividend Stock Analysis
- More Stock Analysis
Tags: CVX, BP, XOM, COP,