This "Boring" Energy Stock Pays a 3.5% Dividend and Keeps Raising It

Chevron (NYSE: CVX), one of the world's largest integrated energy companies, is often considered a boring stock. It's not as exposed to the AI-driven energy boom as natural gas and nuclear companies, and it pays a lower dividend than many top midstream companies.

But over the past 30 years, Chevron has delivered a total return (including reinvested dividends) of 1,940%, beating the S&P 500's 1,890% return. It pays a forward yield of 3.5%, has raised its dividend annually for 39 consecutive years, and will become a Dividend King if it maintains that streak for 50 years. Its low trailing payout ratio of 67% gives it ample room for future hikes. Let's see why Chevron could still be a great income play for long-term investors.

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Why is Chevron a well-rounded stock?

Chevron owns upstream extraction and downstream refining businesses. It also operates midstream pipelines, but that's a "captive" business that only connects its own upstream and downstream businesses rather than serving other energy companies.

When oil prices rise, upstream businesses flourish as their revenue growth outpaces their expenses, but downstream businesses often struggle with higher input costs. But when oil prices decline, downstream businesses usually fare better than upstream ones.

Chevron's scale and diversification across both markets make it a more well-rounded energy company than stand-alone upstream, midstream, and downstream companies. It has a presence in 180 countries, but it gets most of its oil from the U.S., Kazakhstan, and Australia rather than the Middle East. That geographic diversification insulates it from geopolitical conflicts.

Why does Chevron have plenty of upside potential?

Most of Chevron's recent earnings growth has been driven by higher oil prices. Those prices could pull back if the Iran war ends, but Chevron only needs the price of Brent crude (currently at $88 per barrel) to stay above $50 per barrel to cover its capex and dividends through 2030.

Chevron expects to boost its oil and gas production by 2%-3% annually through 2030, as it upgrades its main field in the Permian Basin, expands its overseas operations in Kazakhstan, Australia, and Guyana, and launches new deepwater projects in the Gulf of Mexico. To offset that spending pressure, it will reduce its structural costs by up to $4 billion by the end of 2026.

Analysts expect Chevron's adjusted EPS to more than double to $15.72 this year, easily covering its forward dividend rate of $7.12 per share. At $207, it looks like a bargain at 13 times this year's adjusted earnings -- so it's still a safe stock to buy in this turbulent market.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.