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 premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 7.2% discount to its calculated fair value of $123.69. CVX earned a Star in this section since it is trading at a fair value.
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 two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. CVX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1912 and has increased its dividend payments for 34 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
CVX earned a Star in this section for its NPV MMA Diff. of $1,108. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CVX has. The stock's current yield of 4.67% exceeds the 2.74% estimated 20-year average MMA rate.
Peers: The company's peer group includes: BP plc (BP) with a 4.7% yield, Exxon Mobil Corporation (XOM) with a 5.4% yield and ConocoPhillips (COP) with a 2.5% yield.
Conclusion: CVX earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks CVX as a 4-Star Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $155.41 before CVX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 34 years of consecutive dividend increases. At that price the stock would yield 3.5%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is -0.4%. This dividend growth rate is below than the 2.9% used in this analysis, thus providing a margin of safety. CVX has a risk rating of 1.25 which classifies it as a Low risk stock.
The company's free cash flow payout at 71% (down from 336%) is higher than my desired maximum of 60%. The stock is trading at a discount to my $123.69 calculated fair value. Given CVX's improvement since the last review, I will consider adding 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 (0.6% of my Dividend Growth Portfolio).
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Tags: CVX, BP, XOM, COP,
