It’s time to fill up on Chevron stock

Pain at the pump could be offset by delight at Chevron ($CHV) share prices as this oil stock is one we have been watching closely. Crude is currently trading at $66.72 a barrel, but this oil heavy hitter isn’t showing any signs of slowing down. The company has seen a marked increase in earnings growth, clocking in an incredible 116% in earnings per share this year, and earnings per share for the next 5 years slated to be in the 50%+ range.

Not only does the stock show significant for improvement (Wall Street analysts have price targets between $128 and $187 a share), but the company has been growing its dividend for over 30 years (32 to be exact).

Chevron dividend growth and reinvestment for the future

Looking at a history of Chevron paying out dividends, they have a dividend yield of 3.62% (basic materials average is 2.34% so they easily beat this), annualized payout of $4.48 (paid quarterly), payout ratio is 55.4% (EPS of $8.09), and the previously mentioned 32 straight years of dividend growth.

Yes, these numbers are great, but what do they mean for an economy and world (literal) climate? Chevron has been making significant investments in renewable energy, including:

  • Solar Power
    • Invested in 73 MW across CA, TX, and AZ
  • Wind
    • Casper wind farm generates 16.5 MW in Casper, Wyoming
  • Geothermal
    • Invested in 49 MW joint venture facility in CA
  • Biofuel
    • Created a joint venture with Weyerhauser, trying to commercialize cellulosic biofuels
  • Renewable Diesel
    • Began distributing renewable diesel in CA fuel terminals with a mix of between 6%-20% of renewable diesel

Prices go up, but so has reinvestment

Even though Chevron has increased its dividend for 32 straight years, the payout ratio has dropped slightly, meaning that the company is holding on to cash for reinvestment opportunities, and ushering in new era of power. Playing the long term on this stock is easy to do, as running a 5 YR Discounted Cash Flow EBITDA exit model, we can come to a $205.39 price target, representing a 66% upside to the current share price.

If $123.88 a share is a bit rich for you, and you want to play the long game, take a look at the following options strategy:

Chevron ($CVX) Options Strategy:

Current share price:$123.88
As of EoM 8/8/18
Target share price:$205.39
Buy / SellBUY
Option17th JAN 2020 $195 CALL
Price Per Option$0.40
Total Cost$400
Max Risk$400 at price of $123 on 4th JULY 2019
Max ReturnInfinite on upside
Breakevens at Expiry$195.40
Close Position$192 on 25th NOV 2019
Close Position PriceSell 17th JAN 2020 CALL 10×100 | $4.40
Profit (Dollars)$4,080
Profit (%)1020%


Updated October 15, 2020

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