Chevron Corporation (CVX): How Safe is the Dividend?

Conclusion

Chevron Corporation (NYSE:CVX) is one of the largest integrated oil and gas companies in the world with a great history of 28 consecutive years of dividend increases, a 20-year dividend CAGR (compound annual growth rate) of nearly 8%, and a current yield near 4.3%.

These are some of the dividend statistics we love to see when looking at prospective investments.

However, Chevron’s low Dividend Safety Score indicates the real financial pressure the company faces. There is certainly a reason why investors haven’t received a quarterly dividend increase in more than two years.

Chevron’s management team is doing everything they can to preserve cash, including selling assets, cutting capital expenditures, and reducing SG&A and operating expense spend.

Even with all of these actions, they are still currently free cash flow negative and must fund the dividend through additional borrowings.

While this strategy of funding the dividend will work in the short-term, this is not a sustainable solution if oil prices remain at lower levels and the debt capital market environment becomes less friendly.

As a result, we are not adding Chevron to any of our portfolios despite the seemingly attractive 4.3% yield.

Ultra-conservative income investors might want to consider companies that score higher for Dividend Safety. They can learn more about how Dividend Safety Scores are calculated and how they can help find safer dividend stocks here (6).

Additional Links:

(1) http://seekingalpha.com/article/3993415-chevron-cvx-q2-2016-results-earnings-call-transcript?part=single

(2) http://www.chevron.com/investors/stock-information#dividendinformation