It’s been a tough go of it in the oil patch lately. The price of crude has fallen 29% since the highs last fall. That will make it tougher on oil companies to generate a profit.
But this isn’t the first slump in oil prices seen by management teams of most big oil companies. They’ve managed their businesses through booms and busts before.
As a result of effective management, even when oil prices fell, Chevron (NYSE: CVX) has raised its dividend for 32 years in a row. In fact, Chevron is a member of the esteemed Dividend Aristocrats – companies in the S&P 500 that have raised their dividends every year for 25 years.
That’s the kind of history SafetyNet Pro likes to see.
So it has a heck of a track record – but can Chevron afford to raise its dividend for a 33rd straight year?
A Blip or a Trend?
Free cash flow was negative in 2016. It climbed into positive territory in 2017 and soared in 2018. This year, free cash flow is forecast to dip a bit before rebounding sharply in 2020.
You can see that even with this year’s expected decline in free cash flow, the amount easily covers the dividend.
If analysts’ prediction of $15.8 billion in free cash flow is accurate, the company’s payout ratio will still be a very comfortable 57%. The payout ratio is expected to fall all the way to 48% in 2020.
The company’s long dividend-raising track record, along with a low payout ratio (even in a year when free cash flow is projected to decline), makes for a very safe dividend.
In fact, of the 37 energy stocks rated by SafetyNet Pro, Chevron is one of only four with the highest rating.
Dividend Safety Rating: A
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