1 Top High-Yielding Warren Buffett Dividend Stock You Shouldn't Hesitate to Buy Right Now
Warren Buffett's company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), is stingy when it comes to paying dividends. However, Buffett and his team seem to love collecting dividend income. They've loaded Berkshire's portfolio with many top dividend-paying stocks.
Oil giant Chevron (NYSE: CVX) is one of Berkshire's top holdings. A big draw is its high-yielding dividend, recently around 5%, putting it several times higher than the S&P 500 's (SNPINDEX: ^GSPC) sub-1.5% dividend yield). Here's why you shouldn't hesitate to buy the top oil dividend stock right now.
A big-time income producer
Chevron currently pays a quarterly dividend of $1.71 per share ($6.84 annualized) after increasing its payment by 5% earlier this year. At that rate, Warren Buffett's company collects over $800 million in dividend income from Chevron each year (Berkshire owns 118.6 million shares, or 6.8% of Chevron's outstanding shares).
The oil giant can easily afford to pay Buffett's company and its other investors. Chevron produced $31.5 billion in cash flow from operations last year and $15 billion in free cash flow after funding the capital expenses needed to maintain and grow its production. That covered its $11.8 billion dividend outlay with ample room to spare.
Chevron has so much financial flexibility due to its fortress balance sheet that it opted to return a record $27 billion in cash to shareholders last year via dividends and share repurchases. Even with that massive cash return, Chevron's leverage ratio ended last year at 10.4%, well below its 20%-25% target range.
Chevron's dividend increase earlier this year extended its growth streak to 38 straight years. That includes multiple commodity price cycles, showcasing the resilience of the company's dividend. Further, Chevron hasn't just been nudging up its dividend payment each year to keep its streak alive. It has delivered peer-leading dividend growth over the last 10 years.
In a strong position to continue growing its dividend
The oil company shouldn't have any trouble continuing to increase its dividend. One factor fueling that view is its ultra-low-cost resource base. Chevron has built a very resilient oil and gas resource portfolio, with a peer-leading break-even level of around $30 per barrel this year. With crude prices currently in the mid-$60s, Chevron has a huge cushion.
Meanwhile, the company is currently in the process of completing several major expansion projects around the world. It completed the Future Growth Project in Kazakhstan, which is ramping up its production rate, and recently achieved first oil at its Ballymore project in the Gulf of Mexico (also called the Gulf of America in the U.S.). It has more projects in the Gulf on the way, as well as in the Eastern Mediterranean.
Chevron also continues to expand its U.S. onshore production. The oil company estimates that these projects position it to produce an incremental $9 billion in free cash flow next year at $60 a barrel of oil.
On top of that, Chevron has additional free cash flow growth potential from its pending acquisition of Hess. It's currently in arbitration with ExxonMobil over a dispute regarding Hess' stake in Exxon's lucrative offshore oil field in Guyana. If Chevron wins, it will close the $60 billion deal. Acquiring Hess would enhance and extend Chevron's production and free cash flow growth outlook into the 2030s.
The companies expect a decision within the next two to three months, with both confident they'll emerge victorious. Chevron is so confident it will win that it spent $2.2 billion to buy nearly 5% of Hess' outstanding shares in the first quarter.
However, Chevron doesn't need Hess to thrive. It has the resources and financial strength to continue growing its cash flow in the future without closing that deal.
A top-tier, high-yielding dividend stock
Higher-yielding dividend stocks tend to have higher risk profiles. However, that's not the case with Chevron. The oil giant has one of the lowest risk profiles in the oil patch. Because of that, its high-yielding dividend is safe. Further, it should have plenty of fuel to continue growing its payout in the future.
Because of all this, you can confidently follow in Warren Buffett's footsteps and buy this oil stock for its lucrative dividend income.
Should you invest $1,000 in Chevron right now?
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