Chevron Hikes Dividend, Discovers Oil In GoM's Ballymore

Chevron Corporation (NYSE:CVX) investors have more than one reason to cheer about. The board of directors of the company approved a 3.7% hike in its quarterly dividend. Also, it has made a significant oil discovery in Gulf of Mexico's (GoM) Ballymore prospect.

About the Dividend Hike

Chevron – which is set to release fourth-quarter 2017 results before the opening bell on Feb 2 – will now reward shareholders with a dividend of $1.12 per share compared with $1.08 earlier. This translates to an annualized dividend of $4.48 per share. We note that this puts Chevron in line for a 31st consecutive annualized dividend hike in 2018. It is one of the only two energy stocks on the list of Dividend Aristocrats - a group of 51 companies in the S&P 500 that have raised their payouts for more than 25 years in a row. The increased dividend will be paid on Mar 12, 2018, to shareholders of record as of Feb 16, 2018.

What Possibly Led to the Hike?

In the third quarter of 2017, Chevron generated $5.4 billion in operating cash flow, while shelling out around $5.2 billion in capital expenditures and dividends. This led to around $200 million in excess cash flows - something the company achieved for the first time since 2012. Moreover, as a result of Chevron's focus on planning and execution, the company continues to reduce its operating costs with underlying expenses down almost 5% year to date.

In addition, the company’s financial flexibility and strong balance sheet are real assets, which support the company's dividend hike – the first since the fourth quarter of 2016. Chevron is in excellent financial health, with more than $6.6 billion in cash on hand and an investment-grade credit rating with a debt-to-capitalization ratio of 22.2%.

About the Discovery

Around three miles away from its Blind Faith platform, Chevron has found oil in the U.S. Gulf of Mexico's Mississippi Canyon area. The Ballymore prospect is at a water depth of 6,536 feet. The prospect holds at least 670 feet of net oil pay. The company discovered that the well has a great reservoir and fluid properties. Chevron holds 60% operating stake in the new finding, while the rest is owned by Total E&P USA, Inc., a subsidiary of Total S.A. (NYSE:TOT) .

Price Performance

Chevron has gained 12.9% in the last year compared with 15.3% growth of its industry.

About the Company

San Ramon, CA-based Chevron is one of the largest publicly traded oil and gas entities in the world as per proved reserves. It engages in oil and gas exploration and production, refining and marketing of petroleum products plus manufacturing of chemicals and other energy-related businesses. The company divides its operations into two main segments: Upstream and Downstream.

Cash capital expenditures for the first nine months of the year declined 30%, which will boost its financial strength. However, we remain worried about the headwinds faced by Chevron's U.S. production. The company's exposure to violence-prone regions in Nigeria poses an additional risk.

Zacks Rank and Stocks to Consider

Chevron has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Cabot Oil & Gas (NYSE:COG) and Pioneer Natural Resources (NYSE:PXD) . Both the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX -based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to grow 35.9% year over year. Earnings for 2017 are expected to be up 352.4%.

Irving, TX- based Pioneer Natural Resources is an independent oil and gas exploration and production company. Its earnings for the fourth quarter of 2017 are expected to increase 49.1% year over year. The company delivered a positive average earnings surprise of 67.6% in the last four quarters.

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