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Is Chevron Corp. (NYSE:CVX) the Best Energy Dividend Stock to Buy Now?

Chevron Corp. (NYSE:CVX) ranks 4th in Insider Monkey’s list of the 9 Best Energy Dividend Stocks to Buy Now.

Click to see the full list of 9 Best Energy Dividend Stocks to Buy Now.

Before analyzing Chevron Corp. (NYSE:CVX) , let’s see what’s happening in the dividend investing space these days.

Volatility is prevailing in the energy sector amid geopolitical risks, China-related growth worries and overall fear of recession as inflation remains elevated across the globe. Edward Jones in an industry report earlier this month said that it expects oil prices to stay higher than its expectations throughout 2024. Edward Jones said it is looking to own stocks in the integrated oil and storage & transportation subsectors. The firm said its focus is on companies with strong balance sheets that could weather the volatility in commodity prices and pay dividends.

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A "Compelling Combination" of High Dividend Yields and Growth

The Missouri-based investment banking company said the average dividend yield of the energy sector is more than double the market yield, which makes integrate oil & gas and storage & transportation stocks with Buy ratings a "compelling combination" of high yields and dividend growth.

Edward Jones also believes energy companies are finally starting to practice some capital-spending discipline, after having "outspent" their cash flows for "years." The firm, however, lamented over the energy sector's lackluster performance track record, which it believes is the reason why investors are reluctant when it comes to investing in energy stocks. Edward Jones said the sector's overall share of the S&P has fallen from over 14% in 2008 to approximately 3.9% as of May 15. However, the sector is showing signs of a rebound.

Investing in Energy Dividend Stocks Not Dependent On Near-Term Oil Prices

A Franklin Templeton report published earlier this month said that the energy sector has been the best performer within the MSCI All Country World Index, delivering around 10.3% of YTD total return. The report said the Templeton Global Equity Group is preferring to invest in energy stocks that are not dependent on near-term oil prices. Franklin Templeton also praised the sectors FCF generation, saying the free cash flow yield of the MSCI AC World Energy Index came in at 8.8%, compared to the 4% of the MSCI

"With ample cash flows, the energy sector has continued to reward shareholders with high dividends. The MSCI AC World Energy Index had a dividend yield of 4.4% as of year-end 2023, with market forecasts expecting the sector’s dividend yield to be sustained at 4.2% by the end of 2026. In contrast, the global benchmark yielded a dividend at around 2.1% as of year-end 2023, rising to a forecast 2.5% in 2026. More broadly, the current supply-side constraints relative to demand growth are positive for the sector’s outlook. While slowing, oil demand growth is still expected until at least 2030. However, based on TGEG research, the number of drilling projects has been declining steadily over the past decade, and existing oil fields are depleting at an annual rate of around 4%–5%. This disparity is likely to keep oil prices at or above marginal cost, which should help sustain cash flow generation in the energy sector."

Photo by Zbynek Burival on Unsplash

Chevron Corp. (NYSE:CVX)

Number of Hedge Fund Investors: 62

With 37 years of consistent dividend increases, oil giant Chevron Corporation (NYSE:CVX) is one of the best dividend growth stocks to buy according to hedge funds. Chevron Corporation (NYSE:CVX) has been paying dividends without a break since 1984. Its annual dividend growth rate over the past three years is 5.40%. Chevron Corporation (NYSE:CVX)'s payout ratio is  about 56%, which is higher than the industry mean of 45%, but given the company's huge cash flows and strong fundamentals, dividend safety isn't a major concern for Chevron Corporation (NYSE:CVX) investors

Carillon Eagle Growth & Income Fund stated the following regarding Chevron Corporation (NYSE:CVX) in its fourth quarter 2023 investor letter:

“Chevron Corporation (NYSE:CVX) traded lower, along with oil prices, and issued a disappointing earnings announcement due to overseas refining losses. Separately, the company announced an agreement to buy another energy company with operations offshore of Guyana, as well as in North Dakota, the Gulf of Mexico, and the Gulf of Thailand. This is a strategic acquisition for very little takeout premium.”

On April 26, the company declared a quarterly dividend of $1.63 per share, which fell in line with its previous dividend. This year, the company achieved its 37th consecutive annual dividend hike. As of May 11, the stock has a dividend yield of 3.93%.

In the first quarter of 2024, Chevron Corporation (NYSE:CVX) reported an operating cash flow of $6.8 billion and its free cash flow amounted to $2.7 billion. During the quarter, the company returned $3 billion to shareholders through dividends.

Chevron Corporation (NYSE:CVX) ranks 4th in Insider Monkey’s list of the 9 Best Energy Dividend Stocks to Buy Now.   If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.   READ NEXT: Michael Burry Is Selling These Stocks and Opportunities in Uranium Stocks.   Disclosure: None. This article is originally published at Insider Monkey.