What Chevron actually does
Chevron is one of the largest energy companies in the world and the second-largest direct descendant of John D. Rockefeller’s Standard Oil. It began as the Standard Oil Company of California, known as Socal, and took the Chevron name after merging with Gulf Oil in 1985. It later merged with Texaco in 2001 and is headquartered in Houston, Texas.
The business is integrated: it finds and produces oil and gas (upstream), refines it and sells fuel and chemicals (downstream).
How the business makes money
Profit depends heavily on oil and gas prices. When prices are high, production brings big profits; when they fall, refining and chemicals soften part of the blow. The company focuses on keeping costs low, because it cannot control the price of what it sells.
It also has large projects in the Permian Basin in the US and in major fields overseas, plus liquefied natural gas operations.
The dividend story
Chevron has raised its dividend for more than three decades and is one of the S&P 500 Dividend Aristocrats. It pays quarterly. The yield is usually above the market average, and it also returns cash through buybacks.
As with any commodity company, the dividend should be compared with free cash flow over a full price cycle, not with a single strong year.
What to keep an eye on
- Oil and gas prices. They drive earnings and cash flow.
- Energy transition. Long-term demand for fossil fuels is uncertain.
- Capital spending and acquisitions. Large projects bring execution risk.
- Geopolitics and regulation. Operations span many countries.
Quick take
Chevron is a cash-generating energy giant with a long dividend record. It offers more yield than most large companies, along with more sensitivity to the oil cycle. See also ExxonMobil.