Chevron – It Might Not Be A Great Idea To Buy Chevron Corporation (NYSE:CVX) For Its Next Dividend
Chevron Corporation (NYSE:CVX) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Accordingly, Chevron investors that purchase the stock on or after the 18th of May will not receive the dividend, which will be paid on the 10th of June.
The company’s upcoming dividend is US$1.34 a share, following on from the last 12 months, when the company distributed a total of US$5.36 per share to shareholders. Looking at the last 12 months of distributions, Chevron has a trailing yield of approximately 5.0% on its current stock price of $107.37. If you buy this business for its dividend, you should have an idea of whether Chevron’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Chevron
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Chevron lost money last year, so the fact that it’s paying a dividend is certainly disconcerting. There might be a good reason for this, but we’d want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Chevron didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year, it paid out dividends equivalent to 386% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we’re not grasping, this could signal a risk that the dividend may have to be cut in the future.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Chevron was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Chevron has increased its dividend at approximately 6.4% a year on average.
We update our analysis on Chevron every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Is Chevron worth buying for its dividend? It’s hard to get used to Chevron paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
Although, if you’re still interested in Chevron and want to know more, you’ll find it very useful to know what risks this stock faces. For example – Chevron has 2 warning signs we think you should be aware of.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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