My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

First Look at DOW 30 Component Cheveron (CVX).

Today I continue my series on the DOW 30 component stocks.  Let’s take a first look at super oil major Chevron (CVX).  Chevron has a decent dividend yield and excellent dividend growth.  The stock is trading cheap at only 10.2 times average adjusted earnings.  CVX’s balance sheet is good with the exception of the current and quick ratios.  To see how I came to these conclusions read on.

Chevron (CVX)

Price: $96.58

Shares: 1.97 billion

Market capitalization: $190.52 billion

Image002

What does the company do: Chevron is an integrated energy company with exploration, production, and refining operations worldwide. With production of 2.67 million of barrels of oil equivalent a day (69% oil), Chevron is the second-largest oil company in the U.S. Refineries are located in the United States, South Africa, and Asia for total refining capacity of almost 2 million barrels of oil a day. Proven reserves at year-end 2011 stood at 11.2 billion barrels of oil equivalent (58% liquids).

Morningstar’s take: Like its fellow supermajor integrated peers, Chevron is finding it increasingly difficult to expand production and add reserves in a world with a shrinking investable resource base. Much of the remaining pools of cheap, easily accessible resources large enough to interest the larger players reside in the hands of governments and national oil companies. Resource-rich nations are bolstering their nationally owned or controlled energy companies in an attempt to capture more value for their own countries. While this trend can create an opportunity for firms that can offer oil and gas development expertise, it also forces them to greater lengths to acquire reserves. In Chevron's case, that means focusing on deep-water exploration.

Image008

Bonds: $4.7 billion

Times interest earned: approximately 537 times.  Chevron earned $26.895 billion in 2011 and according to Morningstar.com they paid no interest in 2011.  I don’t think that is right given the $4.7 billion in bonds outstanding.  However, I do have some interest expense information from 2010.  Chevron paid $50 million in interest expense in 2010.  Their bonds are definitely not a threat to the dividend.

Image009

Preferred stock: none

DIVIDEND RECORD: I only have Chevron historical dividend data going back to the 4th quarter of 2001.  CVX paid a $0.35 quarterly dividend in late 2001.  They haven’t cut the dividend at all since then.  In fact, they have grown the dividend through the financial crisis of 2008-2009 when others S&P500 companies cut their dividends.  Today the dividend stands at $0.90 per quarter.  That is 157% straight-line growth over 11 years or straight-line annual dividend growth of 14.3%.  They can proclaim themselves as part of the excellent dividend growers club.

Dividend: $0.90 quarterly

Dividend yield: 3.7% ($3.60 annual dividend / $96.58 share price)

Dividend payout: 26% ($3.60 / $13.61 using 2011 EPS) –OR- 38% ($3.60 / $9.45 using average adjusted earning power)

Image011

EARNING POWER: $9.45 @ 1.97 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

2005

$6.54

$14,099 M

2,156 M

$7.16

2006

$7.80

$17,138 M

2,197 M

$8.70

2007

$8.77

$18,688 M

2,132 M

$9.49

2008

$11.67

$23,931 M

2,050 M

$12.15

2009

$5.24

$10,483 M

2,001 M

$5.32

2010

$9.48

$19,024 M

2,007 M

$9.66

2011

$13.44

$26,895 M

2,001 M

$13.65

Seven year average adjusted earnings per share is $9.45

Consider contrarian buying below $75.60 (8 times average adjusted EPS)

Chevron (CVX) is currently trading at 10.2 times average adjusted EPS.  This is stock is value priced.

Consider value buying below $113.40 (12 times average adjusted EPS)

Consider speculative selling above $189.00 (20 times average adjusted EPS)

BALANCE SHEET – Good balance sheet except for current and quick ratios.

Image017

Book value per share: $63.71 ($125.507 B equity / 1.97 B shares)

Price to book value ratio: 1.5 (under 1.0 is good) ($96.58 share price / $63.71 book value per share)

Tangible book value per share: $61.85 (equity - $4.641 B in goodwill)

Price to tangible book value: 1.57 (near 1.0 is good) ($96.58 / $61.35 tangible book value per share)

Current ratio: 1.61 latest quarter (over 2.0 is good) ($55.272 B current assets / $34.257 B current liabilities)

Quick ratio: 0.57 latest quarter (over 1.0 is good) ($19.768 B cash / $34.257 B current liabilities)

Debt to equity ratio: 0.07 (lower is better)

Percentage of total assets in plant, property, and equipment: 58.08% (the higher the better)

Working capital trend: up huge!

Image018

CONCLUSION – Chevron will become a 6% high dividend stock if they continue the present dividend and their share price drops to $60.00 per share.  Right now the stock has an above S&P 500 average yield of 3.7%.  However, the coming worldwide recession will drop the price of oil and Chevron’s stock price.  They’ve proven themselves to be dedicated dividend payers and growers during the 2008-2009 financial crisis.  Chevron’s stock price bottomed in October 2008 at $57.83.  That panic provided a rare contrarian buy opportunity at only 6.1 times average adjusted earnings .  I think that you will get another opportunity to buy CVX near $60.00 per share again when Europe, Asia, and the US all reenter recession territory due to failed Keynesian economic policies.  Chevron has a good balance sheet.  Their current ratio and quick ratio are not satisfactory for me.  I looked at their current ratio over the past 10 years and they are improving toward 2.0.

DISCLOSURE – I don’t own Chevron (CVX).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

(download)

Which integrated oil majors will become high dividend stocks?

Total_balance_sheet_2006_2010

Today's new about the US government planning to sell 2 million barrels of oil per day for 30 day from the strategic oil reserve got me thinking about which oil majors are high dividend stocks?  The answer is none.  But some itegrated oil majors are close in the 4-5% dividend yield range.  A significant stock market correction could make some of the high dividend stocks yielding over 6%.
 
Exxon Mobil (XOM) yields 2.40%
Cheveron (CVX) yields 3.14%
Royal Dutch Shell (RDS) yields 4.90%
Total (TOT) yields 5.76%
BP (BP) yields 3.95%
Petroleo Brasilero (PBR) yields 4.47%
Conoco Phillips (COP) yields 3.62%
 
If the US government is temporarily successful at increasing the US domestic supply of oil, then oil prices should fall in the short term.  This in turn will drive the oil stocks lower.  That will drive oil stock dividend yields higher and it might possibly provide some attractive buying opportunities for price appreciation once the effects of the governments actions wear off.
 
I'm going to start by examining the highest dividend stock on this short list: Total (TOT).
 
Total (TOT)
Market price: $54.70
Shares: 2.35 billion
Dividend: $1.61 semi annual
Dividen yield: 5.76%
Recent EPS: $7.60
Dividend payout ratio: 84.7% (that sort of high, but tolerable)
 
Earning power: $4.64 average earnings over five years @ 2.35 billion shares
(Earnings adjusted for changes in capitalization - slight increase in shares)
          EPS      Net inc.          Adj. EPS
2006   $5.09     $11,788 M     $5.01
2007   $5.80     $13,181 M     $5.61
2008   $4.71     $10,590 M     $4.51
2009   $3.78     $8,447 M       $3.59
2010   $4.71     $10,571 M     $4.50
Five year average adjusted earnings = $4.64 per share
Market price is at 11.78 times average earnings.  Total appears to be value priced right now.
Value territory starts at or below 12 times average earnings = $55.68
Speculative pricing is at or above 20 times average earnings = $92.80
 
Balance sheet strength:
Book value per share: $27.84
Price to book value ratio: 1.964 (good)
Current ratio: 1.40 (over 2.0 is good)
Quick ratio: 0.87 (over 1.0 is good)
 
Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.
 
Be seeing you!