The Market -- April 18, 2021

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CVX: SeekingAlpha contributor -- Chevron could deliver a 20%+ total return this year -- summary --

• Chevron currently yields 5% and the stock closed Friday at $103.
• Yet the last time WTI was at the current level of $63/bbl (last January), Chevron was trading at $121.
• That was before the addition of ~215,000 boe/d of Noble production, before taking an estimated $2.5 billion out of op-ex, and before implementing an even more disciplined cap-ex plan.
• Add it all up, and CVX should very easily trade back up to $121 this year (and I think significantly above that level) and deliver a 20%+ total return for investors
• This is likely one reason Buffet's Berkshire Hathaway holds 48.5 million shares of CVX stock. Buffett really likes dividends -- as long as he's collecting them, not paying them.
  

The lede:

Over the past 10-years, Chevron has almost doubled its annual dividend from $2.60/share to the current $5.16/share - making it one of the best dividend growth stocks in the energy sector. 

The last dividend increase in January of 2020 was 8%. 

The company will restrain capital spending this year to ~$14 billion, which is only 3.7% higher than last year's $13.5 billion (excluding the Noble Energy acquisition) and a drastic reduction from the ~$20 billion plans prior to the global pandemic. That fact, combined with the recent strength in oil and gas prices, means that Chevron will likely resume its long-term track record of meaningful dividend increases after a pause last year due to the dramatic oil demand destruction caused by the pandemic.

Then this: 

Unlike its peer Exxon Mobil, Chevron has pragmatically embraced the new era of energy abundance and has taken steps to mitigate the impact of generally lower oil and gas margins. 

In addition to the reduction in cap-ex mentioned earlier, note in 2019 CEO Mike Wirth refused to get into a bidding war with Occidental Petroleum over Anadarko and in the process walked away with a cool $1 billion break-up fee. 

More recently, Chevron has announced the sale of its upstream and downstream Marcellus dry-gas assets for $735 million to further bolster the balance sheet, secure the dividend, and lower operating expenses. 

The result is that Chevron has the strongest dividend growth and strongest balance sheet in its peer group.

As mentioned many times on the blog, I never would have ended up with my position in CVX had I not taken advantage of the Texaco bankruptcy decades ago. 

The Noble deal (compare with Pioneer - DoublePoint Energy):

As for the well-timed Noble Energy deal - which was announced during the bottom of the cycle last year - Chevron added 18% more proved reserves at less than $5/boe: an eye-popping cheap deal. At the time, Chevron said the deal would be accretive to ROCE, free cash flow, and earnings per share within one year assuming $40/bbl Brent. Brent closed Friday at $66.77. Can you say "pull-forward" on the accretion timeline?