Daniel Foelber, The Motley Fool
5 min read
In This Article:
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Oil and gas giant Chevron has an industry-leading breakeven point on its upstream portfolio.
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The company can support its massive capital return program without jeopardizing its financial health.
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With 38 years of dividend increases and a high yield, Chevron is an intriguing income play.
Chevron (NYSE: CVX) is an integrated oil and gas major with a growing exploration and production business, sizable refining segment, investments in low-carbon solutions, and more. But the stock has fallen roughly 16% from its 52-week high -- a swift decline considering the high came less than two months ago.
With a yield of 4.8%, here's why Chevron is an excellent dividend stock for passive income investors to scoop up now.
Brent crude oil prices (the international benchmark) are at multi-year lows -- which has put pressure on Chevron's margins and led to lower revenue and earnings growth. In turn, these factors have weighed on its stock price.
However, Chevron has become a much more efficient company. On its first-quarter earnings call, Chevron said it was delivering growth initiatives -- led by short-cycle onshore projects and high-margin offshore projects that are expected to generate an incremental $9 billion of free cash flow (FCF) in 2026 at a $60-per-barrel Brent price, which is below the current price.
Chevron cited Wood Mackenzie data showing it has the lowest upstream breakeven of its peer group -- around the low $30-per-barrel Brent range. According to Wood Mackenzie, that gives Chevron a lower breakeven than ExxonMobil, Shell, TotalEnergies, BP, ConocoPhillips, Occidental Petroleum, Diamondback Energy, and EOG Resources.
In its investor presentation on May 6, Chevron said it expects to achieve a 50% increase in its Gulf Coast production by 2026 thanks to the expansion of its deepwater Anchor project, which achieved first production in August 2024. Lower drilling costs have helped keep Anchor under budget.
In sum, Chevron is still delivering excellent results despite lower oil prices. Its highly efficient production portfolio supports its massive buyback program.
Chevron bought back a record amount of stock each year over the last three years -- $11.26 billion in 2022, $14.94 billion in 2023, and $15.23 billion in 2024.
With buybacks of $3.9 billion in the first quarter and plans for $2.5 billion to $3 billion in buybacks in the second quarter, Chevron is on schedule to pull back slightly on stock repurchases in 2025 but still return a boatload of cash to shareholders. The move to keep a lid on buybacks makes sense given lower oil prices and its planned deal to purchase Hess.
