Management also approved an increase in Chevron’s dividend payment by almost 11% to $1 per share, ensuring that the company continues to pay a dividend with a healthy 3.2% yield. It also ensures that Chevron’s dividend continues to grow at a steady rate with a compound annual growth rate of around 4%.
This dividend yield is also appealing in comparison to Chevron’s peers, being higher than Exxon’s 2.7%, but lower than BP’s 4.9% as the table below illustrates.
Source data: Chevron, Exxon and BP Investor Relations.
This I believe makes Chevron an appealing core investment for any income focused portfolio.
Chevron’s valuation is appealing
Despite these positive catalysts, the key question for investors is whether Chevron Corporation (NYSE:CVX) is cheap at its current price and with an enterprise value to EBITDA ratio of five and a price to operating cash flow per share ratio of six I believe that it is.
Furthermore as the table below shows, these ratios are quite appealing in comparison to its peers, including the largest publically tradable oil company Exxon Mobil Corporation (NYSE:XOM) and BP plc (ADR) (NYSE:BP).
Source data: Chevron, Exxon and BP Financial Filings 1Q13.
While BP does appear cheaper than Chevron on the basis of enterprise value to proven reserves and enterprise value to barrels of oil equivalent produced daily, it should be remembered that BP is still carrying the burden of the Macondo settlement.
Chevron’s risk metrics are also appealing with its low debt to equity ratio of 0.08, along with a debt to EBITDA ratio of 0.3 and operating cash flow to debt ratio of 2.6. They also compare favorably to Chevron’s peers as the table below illustrates and are considerably superior to BP’s.
Source data: Chevron, Exxon and BP Financial Filings 1Q13.
All of which indicate a solid balance sheet and a particularly low level of leverage. This leaves Chevron well positioned to raise additional debt if required to make further investments in the development of its operations.
Bottom line
The spate of legal and other risks that Chevron Corporation (NYSE:CVX) experienced in 2011 through to 2012 has seen the company’s share price perform poorly and this has created a timely opportunity for investors. This is particularly the case with signs that these risks are diminishing combined with a solid balance sheet and an appealing portfolio of projects under development.
Matt Smith has no position in any stocks mentioned. The Motley Fool recommends Chevron. Matt is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Emerging Positive Catalysts Make Chevron a Promising Opportunity originally appeared on Fool.com and is written by Matt Smith.
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