Will Chevron's Dividend Growth Outlook Weaken Amid Headwinds?
Chevron Corporation CVX has long been a reliable dividend stock in the energy sector, offering stability in a typically volatile space. With a current yield around 5% and a five-year dividend growth rate of about 6%, its payouts remain appealing. However, there are signs that future dividend growth may slow down — not because the dividend is at risk, but due to shifting financial priorities.One reason is the loss of high-margin oil production from Venezuela, which used to provide extra free cash flow. While not critical to operations, its absence reduces Chevron's financial flexibility. At the same time, the company's increasing focus on short-cycle shale production, particularly in the Permian Basin, demands ongoing reinvestment. Unlike long-term deepwater projects, shale requires constant drilling to sustain output, creating a trade-off between funding growth and raising dividends.Projects like the Tengiz expansion in Kazakhstan could ease this pressure by 2026, giving Chevron more room to increase payouts. But until then, if oil stays around $60-$65, the company may prioritize maintaining a strong balance sheet and investing in production over aggressively increasing dividends.
ExxonMobil XOM, Chevron's main competitor, offers a slightly lower dividend yield but has shown stronger coverage in recent quarters. Its focus on long-term projects like Guyana and LNG, which require less frequent reinvestment once operational, gives ExxonMobil more room to support future dividend increases.Shell SHEL, meanwhile, took a different path — cutting its dividend significantly in 2020. The European supermajor was forced to slash its quarterly dividend by two-thirds to weather the COVID-induced oil price crash and preserve cash. Since then, Shell has been cautiously rebuilding payouts while also investing heavily in its energy transition strategy.Against this backdrop, Chevron remains a dependable dividend payer, but it may start losing its appeal compared to ExxonMobil's more stable returns, while Shell is not one of the Dividend Aristocrats known for steady payout growth though it boasts of an impressive record.
Shares of Chevron have lost around 4% year to date.
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From a valuation standpoint, Chevron's forward 12-month P/E multiple stands at over 18X, well above the subindustry. CVX carries a Value Score of D.
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The Zacks Consensus Estimate for Chevron's 2025 earnings implies a 32% decline year over year.
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The stock currently carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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