Another promising acquisition for Chevron and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) was the purchase of a combined 700,000 acres in the Permian Basin from Chesapeake Energy Corporation (NYSE:CHK) for $3.3 billion. The Permian Basin is a liquid-rich formation that should provide quick returns for Chevron and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) if they want to cash on higher oil and NGL prices. In addition, the Permian Basin is close enough by rail to Louisiana and the Gulf of Mexico that both companies can benefit by shipping their oil and netting the difference in the Brent crude price compared to the West Texas Intermediate price, minus the cost of shipping.
With the Obama administration intent on reducing America’s reliance on foreign oil, I’d look for companies like Chevron to sees benefits in both liquid and gas production over the coming decades.
Gushing dividend growth
However, the real reason we’re taking a deeper dive into Chevron today is the company’s shareholder-first ethos.
In Chevron’s most recent quarter, the company repurchased $1.25 billion worth of its own shares. While this doesn’t put money directly into shareholders’ pockets, it does reduce the remaining number of outstanding shares and helps to boost EPS and potentially lower the valuation on the company.
More importantly, Chevron announced last week that it was boosting its quarterly dividend by 11% to exactly $1 from $0.90. It also marked Chevron’s addition to the Dividend Aristocrats club, as it’s now raised its dividend for 25 consecutive years!
Source: Nasdaq.com.
*Assumes quarterly payout of $1 for remainder of 2013.
Growth in Chevron’s payout over the past decade has been nothing short of incredible. The company’s payout has increased by 186% over the past decade, and Chevron Corporation (NYSE:CVX) is currently yielding 3.3% — a clean 40 basis points higher than its bigger domestic rival Exxon Mobil Corporation (NYSE:XOM). Furthermore, its payout ratio is only 32% of this year’s projected EPS, leaving plenty of wiggle room to boost its dividend in the future without taking precious cash from acquisitions and drilling opportunities.
Foolish roundup
There are few companies that you can honestly buy for decades and not worry about, but Chevron certainly appears to be one. Chevron’s reserves are both asset- and geographically diverse, and the company is well positioned to take advantage of domestic energy growth, as well as rapidly growing emerging market energy demands in Southeast Asia and Eastern Europe. Having generated an average of $11.4 billion in free cash flow over the past three years, and with a quickly growing dividend yielding in excess of 3%, I see no reason Chevron shouldn’t be a serious consideration for your portfolio or your retirement account.
The article 1 Great Dividend You Can Buy Right Now originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. The Motley Fool also recommends Chevron.
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