This Oil Stock's Dividend Looks Built to Last Even if Energy Prices Slump

Despite the rise of renewable energy over the years, oil and gas still play a pivotal role in meeting the world's energy needs. Chevron (NYSE: CVX) is a very popular dividend stock in the oil and gas industry. Investors love its generous dividend yield, currently about 4.1%.

However, energy prices, specifically oil, have been on a steady downtrend since early 2022, when Brent crude oil traded at $120 per barrel. Today, Brent crude is at $65. Lower prices mean lower revenue and profits for Chevron and other companies that extract oil from the ground to sell.

Nobody can predict when oil prices might rebound, or what prices to expect next.

But if oil continues to slide, here is why you shouldn't have to worry about Chevron's dividend.

Image source: Getty Images.

Long track record of navigating volatility

Chevron's consistent dividend performance is a big reason why investors love the stock. The company has increased its dividend for 37 consecutive years. That doesn't necessarily promise anything about the future, but it does give some insight into Chevron's ability to navigate an infamously unpredictable energy industry.

Few oil and gas companies can match Chevron's consistency, and the company's massive size (balance sheet) and diverse upstream and downstream operations are significant reasons for that. Chevron's upstream business suffers when prices fall, but its refining operations can become more profitable in those situations, helping alleviate some of that financial stress.

As for Chevron's balance sheet, the company boasts a stellar AA credit rating and has nearly $8 billion in cash. It can tap that cash or borrow money in a pinch. Additionally, Chevron is generating enough free cash flow to fund the dividend with about 20% left over, so the company is still in a good place despite the prolonged slide in oil prices.

Ready for what may come next

Chevron recently held an investor event where it outlined plans for the coming years. The company recently closed a $55 billion acquisition of Hess, giving it key assets in the Stabroek Block, one of the most significant oil discoveries in recent history.

As a result, Chevron plans to grow its production output by 2% to 3% annually through 2030, resulting in annualized free-cash-flow growth of 10% over the same period. Importantly, management believes it can fund its capital expenditures and current dividend at Brent crude prices of $50 per barrel.

The only time Brent crude fell to $50 per barrel over the last decade was during the COVID-19 pandemic. Could it drop to $50 or below? Of course! At the very least, Chevron has done a good job of ensuring that its business remains feasible in all but the most extreme scenarios.

Investors can find some great companies in the energy industry. Chevron is one of them, and investors should be able to count on the stock for the dividend income they crave.

Justin Pope 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.