Drill For Income in Chevron Stock — But Only After Earnings

Dividend Stocks

Chevron (NYSE:CVX) reports earnings on Nov. 2 before the bell. The oil giant has enjoyed decades of stability. However, earnings misses have left CVX stock falling slightly over the last 12 months.

Still, CVX benefits from steadily rising oil prices. This pricing has begun to show up in increased earnings. Given the improving prospects for its industry, Chevron stock will serve some types of investors very well regardless of whether it meets estimates.

CVX Stock Should See Higher Revenue and Earnings

Wall Street forecasts an earnings per share (EPS) of $2.06 for CVX stock. If it holds, it will represent a 142% increase from year-ago earnings when the company reported an EPS of 85 cents. Analysts also expect the company to report revenues of $46.67 billion. This would come to a 28.9% increase from the same quarter last year. At that time, Chevron reported $36.2 billion in quarterly revenue.

The company has benefited from steadily rising oil prices. However, CVX stock has not seen these benefits. Measuring by market cap, Chevron has become the second-largest energy company in the country, lagging behind only Exxon Mobil (NYSE:XOM) in size. Despite its massive earnings growth, the stock has fallen this year and trades just above its 52-week lows.

Earnings Misses Common for CVX Stock

Don’t assume that CVX earnings will meet expectations, however. Chevron has missed earnings estimates in three of the last four quarters. Also, investors should note that Chevron operates as a diversified oil firm. As such, it doesn’t see the extreme boom and bust cycles that a purely upstream (exploration and production) company such as ConocoPhillips (NYSE:COP) sees. It also does not focus primarily on a more stable business such as refining like Valero (NYSE:VLO).

However, oil prices have slowly but steadily risen for more than two years. Moreover, profit expectations for next year have seen significant upward revisions. As of now, its current P/E ratio stands at close to 14. The revised earnings for 2019 take the forward PE ratio to just 11.5.

CVX Stock Well-Suited for Income Investors

Income investors will like CVX’s dividend. This year’s annual dividend of $4.48 per share takes the yield to just over 4%. Chevron stock also maintains dividend aristocrat status as its payout has seen annual increases for 32 consecutive years. As such, the CVX stock price depends heavily on keeping this streak. Since this payout has increased amid both boom and bust cycles, one should expect it to move higher for many years to come.

For this reason, I recommend CVX stock for income investors. Few stocks pay a dividend of more than 4% and face heavy pressure to increase it every year. Moreover, at 11.5 times forward earnings, CVX stock has become too cheap not to attract more interest. Hence, long-term investors should benefit from both dividends and stock price appreciation.

Given the three earnings misses over the past year, investors probably will not want to hurry to buy before the report as the price is likely to dip after a miss. Still, one should not buy CVX stock to make a quick buck. Prospective buyers should purchase this stock to collect dividends and sell at a higher price years down the road. If one holds this investment goal, Chevron stock should stand as an ideal option.

The Bottom Line on CVX stock

CVX remains an excellent choice for dividend-focused investors regardless of earnings. Though CVX stock frequently misses earnings estimates, it has seen massive income growth over the last couple of years. Moreover, it has fallen to a low P/E ratio despite this growth and its 32-year record of dividend increases.

Given these factors, CVX stock will serve the type of buyers who want dividends now and capital gains later very well. However, do refrain from allowing impending earnings reports to influence a buy decision.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

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