With oil still trading around the $90 per barrel, the U.S. is contending with historically high energy costs, but it pales in comparison to the energy crisis looming in Europe as Russian President Vladimir Putin has shut off much of the continent's supply.
Natural gas prices are soaring five times higher than what they were just one year ago and European governments are warning people to expect shortages not only this winter, but maybe even in further winters to come.
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Despite the hope for a greener future of solar and wind power here and abroad, there is not yet the infrastructure available to meet current needs, let alone future demand, and it's clear that fossil fuels will remain a critical component of the energy mix for decades to come.
With most of Chevron's (CVX +0.89%) earnings derived from assets located in international markets, the global energy giant should be part of every investor's portfolio.
Demand-side momentum
The integrated oil and gas giant has been a monster stock, soaring almost 40% in 2021 and adding on another similar percentage increase this year. A $10,000 investment in Chevron two years ago would be worth some $19,000 today, compared to just $11,400 had you invested in the S&P 500 index.
While Russia's invasion of Ukraine earlier this year has certainly helped keep oil and gas prices elevated, they were rising long before war broke out because demand spiked when the economy reopened. Although the Federal Reserve and central banks around the world are aggressively raising interest rates in a bid to dampen economic growth, demand for oil should stay robust.
Chevron has told investors that even if oil tumbles back down to the $50 a barrel level (essentially its break-even price), it would still be able to maintain its dividend and continue to buyback shares. Perhaps not at the same record-setting rate of stock buybacks its currently doing -- and it recently increased the buyback rate to $15 billion to $17 billion a year -- investors needn't worry about the payout too much.
If oil prices stayed at least at the $75 a barrel level, the energy stock would be able to continue raising the dividend and buy back more than 25% of its outstanding shares.
NYSE: CVX
Key Data Points
Size matters
Chevron's status as one of the biggest players at both the upstream and downstream stages of the supply chain helps ensure that it can generate outsized profits. Its profits just quadrupled last quarter as its upstream drilling and production assets generated record profits on soaring prices, while its downstream refining operations enjoyed higher margins, despite some offsetting losses in its chemicals business.
The size of the integrated oil and gas company shelters it from a lot of the problems that have plagued smaller rivals. Even when oil struck $30 a barrel during the onset of the pandemic (prices even went negative at one point for the first time ever), Chevron was one of just a handful of oil stocks that did not suspend or cut its dividend.
Chevron has paid a dividend for years without fail, and has not neglected to increase the payout at any time over the last 35 years, which makes it a Dividend Aristocrat. While there's no guarantee some future calamity might not lead to a dividend cut (though that's true for any stock), Chevron is about as safe as an investor could hope for when it comes to income-generating stocks.
