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Chevron Stock: A Safe Play for Dividend Investors in 2020

Chevron Stock

Chevron (NYSE: CVX) stock is considered as the best pick for defensive investors amid its massive business model and sustainable growth potential. Moreover, the improvement in oil prices is enhancing its future fundamentals.

The company is likely to post better profits and cash flows in 2020, driven by its operational strategies and a move towards high margin U.S. oil plays.

Chevron stock is currently trading slightly below from 52-weeks high of $125. The company offers a dividend yield of 4%. The company has a long history of increasing cash returns for investors. It has raised dividends in the past 18 successive years. Moreover, investors should also expect cash returns in the form of share buybacks.

CVX Chevron Corporation daily Stock Chart

Dividend Growth is Safe in 2020

The company appears in a position to sustain its dividend growth in 2020. This is because of its strategy of investing in high margin assets which help in generating higher profits and cash flows. In addition, the strategy of selling noncore assets in the international market would also give a boost to cash flows.

Its unconventional net oil-equivalent production in the Permian Basin stood around 455,000 barrels per day in the latest quarter, indicating a gain of 35% from a year-ago period.

Chevron Stock: A Safe...

The company had generated $25 billion in operating cash flows in the first nine months of the year. Meanwhile, its capital investments accounted for $14 billion. Thus, the company was left with $9 billion in free cash flows – which is more than enough to cover dividend payments of $6.4 billion.

Market Fundamentals are Improving for Chevron Stock

The improvement in oil prices over the last couple of months is likely to provide significant support to its financial numbers.

Oil prices are currently standing around the highest level in the last eight months. Threats of war between the United States and Iran could disrupt oil supplies from the Gulf region. Overall, CVX has the potential to sustain dividend growth. In addition, Chevron stock price is likely to receive support from oil prices in 2020.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.