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.

blog comments powered by Disqus
Insider Monkey Headlines
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

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!