The energy sector had a tumultuous ride in 2018, with crude prices starting the year above $60 a barrel and touching multi-year highs of more than $76 in early October before hitting a deadly downdraft since mid-October. Crude downturn in the final months of the year amid supply glut, U.S.-China trade tussle, weakening demand outlook and economic headwinds hit the oil and gas companies hard. Amid the gloomy backdrop, the largest oil producer in the United States, Chevron Corporation (CVX Quick QuoteCVX - Free Report) lost 13% of its value in 2018. In fact, most of the oil majors including Royal Dutch Shell plc , Exxon Mobil Corporation (XOM Quick QuoteXOM - Free Report) , BP plc (BP Quick QuoteBP - Free Report) and TOTAL SA, among others, saw their share prices tumble last year. 

 

While oil prices recently hit a two-month high, renewed concerns over economic slowdown, particularly in China, are again weighing on the commodity. Markedly, China’s economic growth in 2018 was the slowest in 28 years, owing to massive debt concerns and trade tiff. Amid the growing crisis, the question is: Will Chevron manage to hike its dividend payout this year as well?

 

Let’s delve deeper to analyze the overall scenario of the company.

 

 

While the California-based integrated oil giant is yet to report full-year 2018 results on Feb 1, 2019, the numbers for the first nine months of the year have been quite impressive on the back of oil rally during the said time frame and production gains. 

 

For the nine months ended Sep 30, 2018, Chevron recorded net earnings of around $11.1 billion, representing a solid 82% increase from the year-ago corresponding period’s income of $6.1 billion. Cash flow from operations, which is an important metric to gauge the financial health of the firm, came in at $21.5 billion versus $14.2 billion recorded in the year-ago period. Markedly, during the third quarter of 2018, the company generated robust cash flow of $9.6 billion — the highest in nearly five years. The significant cash flow enabled Chevron to repurchase $750 million of its own shares, in addition to paying dividend and taking care of capital expenditure.

 

 

Chevron is a company that has always emphasized on its commitment toward dividend growth as its top priority. The diversified oil company has a long and consistent dividend-paying track record. It is one of the only two energy stocks on the list of Dividend Aristocrats — a group of 51 companies in the S&P 500 Index — that have raised their payouts for more than 25 years in a row. Notably, Chevron has increased its dividend for 31 consecutive years. Apart from its impressive 31-year streak of higher dividends, it displays a current yield of 4%, which is healthier compared with most of the other stocks in the market. 

 

 

Interestingly, the company managed to maintain its dividend record even during the three year crude downturn since mid 2014. What’s even more amazing is the fact that there were years when it did not announce any quarterly dividend increase, but still the annualized payments were higher than the previous year.

 

For instance, the company raised its quarterly dividend by 7% to $1.07 a share in the second quarter of 2014, resulting in an annualized payout of $4.21 apiece. However, in 2015, the company did not declare any quarterly hike. Yet, maintaining its payout at $1.07 a share every quarter, the annual dividend rose to $4.28. To maintain Chevron’s dividend track record amid the challenging commodity environment, the company waited till the fourth quarter of 2016 to finally increase its payout by a penny to $1.08 a share, resulting in an annualized dividend of $4.29. In 2017, Chevron again did not hike its quarterly dividend. However, by making four payments of $1.08 apiece, its total dividend amount of $4.32 per share represented annual growth. 

 

With Chevron's intensive focus on planning and execution, the company continues to reduce its operating costs, and generate enough cash to pay off debt and fund capex along with dividend payments. Early last year, the company raised its quarterly dividend by 3.7% to $1.12 a share ($4.48 apiece annualized), marking its 31st consecutive annualized dividend hike. 

 

What’s worth appreciating is the fact that while many oil majors slashed payouts or resorted to scrip dividends during the crude slump, Chevron still managed to reward its shareholders with higher annualized cash dividends.

 

 

While the recent weakness in oil prices may have raised doubts whether Chevron will be able to keep its dividend status attractive in 2019 as well, the company surely fares well on the reliability factor. We have already seen how Chevron managed to keep its dividend growth streak alive even during the crude downturn. While the Zacks Rank #5 (Strong Sell) company’s cash from operations fell much short of capital spending during the three-year slump, it relied on asset sales as well as borrowings to plug the deficit, and never disappointed the income investors. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

We know that the company has pegged its 2019 capex at $20 billion, up 9.3% from 2018 investment of $18.3 billion. In fact, the company upwardly revised the capital budget for the first time in four years. Now, the weakness in the commodity prices amid economic headwinds has not just taken a toll on Chevron, but the entire industry. In addition, the company plans to devote 87% of its 2019 capex to upstream operations, with a special focus on the Permian region that is facing infrastructure bottlenecks, which are not likely to wane this year. 

 

While these factors may raise concerns, the company’s strong financials, competitive cost structure, solid execution and most importantly its consistent emphasis on returning value to its shareholders make us optimistic about a dividend hike this year as well.  

 

 

We believe that Chevron will be able to tide over the blues and manage to maintain its appeal among the dividend investors. However, whether the oil giant will announce a dividend hike soon or in the latter half of the year remains a wait and watch story. An imminent payout will surely make investors more confident about the company’s future prospects. As it is, Chevron’s CEO Wirth recently emphasized that the firm is looking to concentrate on projects that offer stable production growth, resulting in consistent free cash flow to fund dividend and buybacks. However, if it acts conservatively, waiting till the fourth quarter to announce a minimal hike just like it did in 2016, it may add fuel to the growth concerns. Nonetheless, we certainly don’t expect Chevron to put brakes on its attractive dividend record and dash the hopes of its investors. 

 

 

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year? 

 

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%. 

 

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.