3 Reasons to Buy Chevron Stock Like There's No Tomorrow

Key Points

• Chevron has one of the lowest-risk business models in the oil sector.

• The oil giant has a growth spurt coming in 2026, with even more growth ahead.

• It pays a high-yielding, steadily rising dividend.

• 10 stocks we like better than Chevron ›

Chevron (NYSE: CVX) has delivered a relatively mediocre return over the past year. Shares of the oil giant are up less than 5%, which is underwhelming compared to the nearly 15% gain of the S&P 500 (SNPINDEX: ^GSPC).

Despite that lackluster recent performance, Chevron has a lot going for it these days. Here are three reasons to buy the oil stock like there's no tomorrow.

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Image source: Getty Images.

1. A low risk profile

Oil companies are inherently riskier due to the volatility of oil and gas prices. However, Chevron has one of the lowest risk profiles in the oil patch. The company has the lowest-cost business in the industry, with a break-even level of around $30 per barrel. That enables Chevron to produce lots of cash flow even at lower oil prices.

Chevron complements its low-cost operations with a fortress balance sheet. Its net debt ratio was 14.8% at the end of the second quarter. That's toward the lower end of the sector and well below Chevron's 20%-25% target range. This provides Chevron with the financial flexibility to continue investing in expanding its business during oil market downturns.

2. A growth surge with more to come

Chevron's capacity to invest throughout the oil market cycle enables it to make long-term investments. It's starting to reap the rewards of some long-cycle projects. The company achieved first oil at its Future Growth Project in Kazakhstan earlier this year, which is ramping up to full capacity. Chevron also recently completed some new developments in the Gulf of Mexico (also known as the Gulf of America in the U.S.).

These and other initiatives have Chevron's legacy business on track to produce an incremental $10 billion in annual free cash flow next year. That's a substantial increase compared to the $15 billion in free cash flow it produced last year.

The company also played the long game with its acquisition of Hess. Chevron initially signed the merger deal in late 2023, but didn't close the transaction until this July. Its patience will pay off, as that megamerger will provide an immediate boost to Chevron's free cash flow next year, adding another $2.5 billion to its expected total, which it now sees increasing by $12.5 billion in 2026. Meanwhile, that deal will extend Chevron's visible production and free cash flow growth outlook into the 2030s.

The energy company is also building out several lower-carbon energy businesses to further enhance and extend its long-term growth outlook. It recently entered the U.S. lithium sector by acquiring land in the lithium-rich Smackover formation in Northeast Texas and Southwest Louisiana. Chevron is also investing in building out biofuel, hydrogen, and carbon capture and storage businesses. These investments position the company to continue growing even as the world transitions to lower-carbon energy sources.

3. An attractive and steadily rising dividend

Chevron's combination of a low-risk business model and growing cash flows has enabled it to pay a reliable and steadily rising dividend. The company has increased its dividend for 38 straight years. That time frame includes multiple periods of lower oil prices, showcasing the resilience of Chevron's dividend. The company has delivered peer-leading dividend growth over the past decade, a stretch during which several rivals reduced their dividend payments.

The company's dividend yields 4.5%, nearly four times the S&P 500's sub-1.2% yield. Chevron supports this high-yielding payout with a strong financial foundation. With its next growth wave coming, now is a good time to lock in this attractive dividend, which should continue growing.

A great combination

Chevron's ultra-low-cost operations and fortress balance sheet enable it to navigate the oil sector's volatility with ease. Its upcoming growth wave will provide it with lots of additional cash, giving it ample fuel to continue increasing its high-yielding dividend. If you're seeking a dependable blend of growth and income, now is the time to consider loading up on Chevron stock.

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Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.