Will Chevron Corporation (CVX) Help You Retire Rich?

Chevron (CVX) Set to Win Lithuanian Shale Gas LicenseNow more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won’t just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

They say that being No. 2 makes you try harder, and if that’s the case, then Chevron Corporation (NYSE:CVX) is the hardest-working company in the oil business. With its higher share price, Chevron has a bigger weighting among the Dow Jones Industrials than its larger rival Exxon Mobil Corporation (NYSE:XOM), and lately the company has been making every effort to grow even in the face of challenging conditions in the energy markets. Below, we’ll revisit how Chevron does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts’ growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won’t make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock’s share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won’t fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time — as long as it doesn’t jeopardize the company’s financial health.

With those factors in mind, let’s take a closer look at Chevron.

Factor What We Want to See Actual Pass or Fail?
Size Market cap > $10 billion $227 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 3 years Fail
Free cash flow growth > 0% in at least four of past five years 3 years Fail
Stock stability Beta < 0.9 0.78 Pass
Worst loss in past five years no greater than 20% (18.3%) Pass
Valuation Normalized P/E < 18 7.91 Pass
Dividends Current yield > 2% 3.1% Pass
Five-year dividend growth > 10% 9.2% Fail
Streak of dividend increases >= 10 years 25 years Pass
Payout ratio < 75% 27% Pass
Total score 7 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Chevron last year, the company has dropped a point for the second year in a row, with falling revenue leading to the decline. The stock has managed to do a little better, picking up about 5% over the past year.

Chevron has had a rough year, facing the twin headwinds of challenges in maintaining production levels and lower prices for both oil and natural gas. Moreover, with legal issues in Brazil and Ecuador resulting from environmental damage, Chevron has found itself on the defensive in its international operations.

But Chevron is doing its best to grow. It took advantage of Chesapeake Energy Corporation (NYSE:CHK)‘s need to raise cash by spending $3.3 billion to buy nearly all of Chesapeake’s assets in the Permian Basin. It’s even working closely with ExxonMobil to develop an Australian liquefied-natural-gas project that could supply China and the rest of Asia with gas later this decade.

More recently, Chevron’s growth attempts have begun to pay off. In its most recent quarter, the company reported rising production levels both in the U.S. and abroad in net oil-equivalent terms, with international nat-gas production and domestic liquids production leading the way.

For retirees and other conservative investors, it’s hard to argue with the rock-bottom valuation that Chevron sports right now. With the company having recently reached the 25-year dividend increase milestone to become a Dividend Aristocrat, Chevron looks more attractive than ever as a core energy stock for retirement portfolios.

Add Chevron to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

The article Will Chevron Help You Retire Rich? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool has options positions on Chesapeake Energy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!