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This Unstoppable Dividend Aristocrat Could Be This Year's Best-Performing Dow Stock

The iconic Dow Jones Industrial Average has had a rough year. Overall, the leading market index has lost more than 15% of its value, weighed down by surging inflation and concerns about the U.S. economy. Meanwhile, many Dow components are down even more.

However, there are a few bright spots in the Dow this year. The best-performing Dow stock by a long shot is oil giant Chevron (NYSE: CVX). The Dividend Aristocrat has gained more than 25% on the year, well ahead of the next best performer Merck and its over 15% return. If this keeps up, Chevron could end up being the best Dow stock of 2022. Here's a look at what's fueling Chevron's surge.

Gushing profits and capital returns

Chevron has gotten 2022 off to a great start. The oil giant reported $6.5 billion of adjusted earnings in the first quarter, more than triple the $1.7 billion it pulled in during the year-ago period. The company's cash flow was even higher ($8.1 billion), enabling it to produce a gusher of free cash flow ($6.1 billion).

Fueling Chevron's gusher was higher production -- it produced a record 692,000 barrels of oil equivalent per day from its U.S. Permian Basin operations in the first quarter -- and higher oil prices. Crude prices have rallied more than 40% this year, enabling Chevron to cash in on its rising production.

The company's surging cash flow gave it more money to reinvest in its oil business and reward shareholders. Chevron expects to spend more than 50% above last year's total on capital projects and acquisitions. The company also increased its dividend by 6%, marking the 35th straight year of unstoppable dividend growth. The company also boosted its share repurchase guidance range to $5 billion-$10 billion annually, up from its prior forecast of $3 billion to $5 billion per year. That has it on track to return 50% more cash flow to shareholders in 2022.

Ramping investments for the future of energy

Another highlight this year is Chevron's progress on its lower-carbon energy strategy. The company announced the acceleration of its lower- carbon ambitions late last year, tripling its planned capital investment to $10 billion through 2028. This year, it has signed several deals to deliver on its target to grow its lower-carbon business.

The headliner was the acquisition of Renewable Energy Group for $3.15 billion. The company is a leader in renewable fuels and will accelerate Chevron's goal to grow its renewable fuels production capacity to 100,000 barrels per day by 2030. Chevron also formed a joint venture with Bunge (NYSE: BG) to create the renewable feedstocks needed to produce renewable fuels. Chevron is committing $600 million in cash to the partnership, while Bunge is contributing two soybean processing plants. The partners plan to double their production capacity by 2024 and may explore other opportunities to produce renewable fuel feedstocks.

Chevron is also making progress on its strategy to develop a hydrogen business and grow its carbon capture and storage operations. The company unveiled plans to build 30 hydrogen fueling stations in California, part of its plan to invest $2.5 billion into the potentially emissions-free fuel. The oil giant also signed several agreements to develop carbon capture and storage projects to pull carbon dioxide emissions from the air and store them underground.

The company's investments in lower-carbon fuels should help Chevron continue growing. Hydrogen and carbon capture are potentially multitrillion-dollar opportunities. Chevron is looking to capitalize on their massive growth potential by getting in on those emerging sectors early. That could give the energy giant the fuel to continue growing its dividend in the coming years.

Chevron's having a banner year

While 2022 has been a rough year for many Dow stocks, it has been great for Chevron. The company is riding high, thanks to surging oil prices. That's giving Chevron the money to continue growing its dividend and invest in the fuels of the future. Those investments could give it the means to deliver unstoppable dividend growth in the coming years.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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