Chevron Corporation (NYSE:CVX) has announced that it will be increasing its dividend from last year’s comparable payment on the 10th of March to $1.78. The payment will take the dividend yield to 3.9%, which is in line with the average for the industry.
Chevron’s Payment Could Potentially Have Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, the company’s dividend was higher than its profits, and made up 85% of cash flows. While the cash payout ratio isn’t necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
EPS is set to grow by 54.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.
Chevron Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2016, the dividend has gone from $4.28 total annually to $7.12. This means that it has been growing its distributions at 5.2% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
Chevron Might Find It Hard To Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. We are encouraged to see that Chevron has grown earnings per share at 11% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company’s future dividend payments.
We should note that Chevron has issued stock equal to 10% of shares outstanding. Regularly doing this can be detrimental – it’s hard to grow dividends per share when new shares are regularly being created.