Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn’t sustainable. In others, the dividend is so low, it’s not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we’re going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn’t to say that these stocks don’t share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week’s selection.
This week, I’ll highlight the nation’s second largest integrated oil and gas company, Chevron Corporation (NYSE:CVX).
Every Chevron shareholders’ biggest nightmare
The biggest concern for Chevron Corporation (NYSE:CVX) and its largest rival, Exxon Mobil Corporation (NYSE:XOM), is declining energy prices. Weakening global economies could send oil and natural gas prices significantly lower, which would dramatically affect both companies’ bottom lines. Lower prices became a reality for both Chevron and Exxon Mobil Corporation (NYSE:XOM) in their most recent quarters. Chevron Corporation (NYSE:CVX)’s average realized price for a barrel of oil and natural gas liquids fell to $94 from $102 in the year prior. For Exxon Mobil Corporation (NYSE:XOM), lower oil price realizations coupled with higher natural gas price realization lowered year-over-year earnings by $230 million.
The other factor upstream and downstream companies have to keep in mind is maintaining adequate liquidity to make acquisitions, deploy infrastructure improvements, and cover day-to-day expenses. Chesapeake Energy Corporation (NYSE:CHK), for instance, went on a buying spree last decade, which positioned it as one of the U.S. leaders in natural gas reserves. However, when natural gas prices fell to decade lows last year, Chesapeake Energy Corporation (NYSE:CHK) didn’t have enough cash to cover its 2013 capital expenditures. In response, Chesapeake Energy Corporation (NYSE:CHK) was forced to raise cash by selling assets.
But aside from the threat of a severe global recession, there isn’t much that stands in the way of Chevron Corporation (NYSE:CVX) shareholders and big profits.
Chevron’s overseas opportunity
To begin with, Chevron’s first-quarter profits, while lower compared with last year, point to a major trend in international growth. Chevron’s upstream operations saw a 3% profit improvement — although this was largely due to favorable currency translation — while its international downstream business delivered 64% profit growth. Part of this was due to the consolidation of Star Petroleum Refining in Thailand, but it’s also because of higher realized crack spreads during the quarter.
The demand for energy in emerging markets like China and India is growing at a much faster pace than established markets like the U.S., which makes Chevron Corporation (NYSE:CVX) a perfectly positioned oil and gas play thanks to its global asset diversification. Chevron is currently developing two liquid natural gas projects in Australia (Gorgon and Wheatstone) that are expected to deliver an initial capacity of 8.9 million metric tons per year. Not surprisingly, Chevron is Australia’s largest natural gas asset holder. Just the proximity of this fuel to Southeast Asia and China places Chevron in an incredible position to reap the rewards of its liquid and gas recovery.
… But don’t forget its domestic dominance
Chevron’s domestic assets and projects are nothing to sneeze at, either! Chevron Corporation (NYSE:CVX) remains on track to bring two deepwater projects online in the Gulf of Mexico next year and is the second-largest acreage holder in the natural gas-rich Marcellus Shale in Pennsylvania. Unfortunately, that acreage hasn’t translated into huge production totals as of yet; then again, weak natural gas prices haven’t merited spending large amounts of capital on boosting production.