Over 5% of Warren Buffet’s portfolio comprises of Chevron (CVX) stock. He even added to his position in 2023. That in itself is a good reason why one should buy the stock.
But the valuation you buy a company at is what determines your returns in the long run. Just because a company is in someone’s portfolio doesn’t automatically make it a good investment. Having said that, Chevron, at its current price, is a great stock to add to your portfolio.
Let’s dive in to the reasons why Chevron deserves a place in your stock portfolio.
Higher oil prices
As we saw last month, OPEC considered extending the 3.66 million barrels per day (bpd) production cuts for as long as November 2025 and the other 2.2 million bpd cuts till September this year, implying higher oil prices are here to stay.
The upward trend in oil prices is good news for Chevron. If the oil prices stay elevated, it will boost the company’s profit margins and as a result, its ability to reward shareholders.
Furthermore, Chevron is ready for significant production growth during the year. They have just acquired PDC Energy and are expanding their output in the Permian Basin by 4% – 7% annually.
A high dividend yield
Long term investors love dividends. They offer a protection against the downside. If the market goes down, the yield goes up. If you like the company, you can buy cheaper shares.
Those accumulating Chevron for the past two years have been doing exactly that. Accumulating the stock patiently while enjoying dividends.
Chevron Corporation (CVX)’s consistent increase in dividends since 37 years is a good enough reason to be positive on the company’s ability to pay dividends in future.
The current dividend yield of the company stands at 4.17% and the payout ratio is around 53%, Clearly there is ample room for the company to keep investing in its growth while giving out dividends to shareholders.
Financial stability
We just mentioned how the company has a decent payout ratio with an attractive dividend yield. Any company that has increased its dividend for the past 37 years can only afford to do that if its finances are in order. Chevron is one of those companies.
It has abundant cash reserves with over $8bn in cash and short term investments. Cash flow from operations of over $35bn show the strength of its operations. A free cash flow of early $20bn is down from 2022 levels. But at debt to equity of 0.14%, Chevron’s balance sheet stands out among its competitors, even Exxon, which has a debt to equity ratio of 0.2.
For all these reasons, it won’t be a bad idea to add Chevron to your portfolio, if you don’t already hold this dividend paying stock.
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