 | | Is This Oil Giant's 33-Year Streak About to End? | | Marc Lichtenfeld, Chief Income Strategist, The Oxford Club | The P-E-R-F-E-C-T Drink
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Click here for the simple recipe. | | | Editor's Note: In today's Safety Net, Chief Income Strategist Marc Lichtenfeld lifts the hood on an oil giant and Dividend Aristocrat whose dividend may no longer be safe.
And this time, the COVID-19 crisis isn't solely to blame...
In fact, our friends at our sister e-letter Profit Trends - Chief Trends Strategist Matthew Carr and Energy and Infrastructure Strategist David Fessler - recently released research suggesting that this is part of a larger disruption in the energy sector.
The oil company that Marc covers in the article below proves that even the largest energy stocks aren't immune. To learn more about the energy crisis Matthew and Dave are calling the "OPECalypse," click here.
- Mable Buchanan, Assistant Managing Editor
Chevron (NYSE: CVX) is a member of the esteemed Dividend Aristocrats. These are companies that are in the S&P 500 and have raised their dividends for 25 years in a row or longer.
It is an esteemed club with only 66 companies included.
Investors love Dividend Aristocrats because they historically beat the market with lower volatility. | | | Chevron has been in the dividend-raising business since 1988. Back then, we had no cellphones and no internet, but we did still have the Soviet Union. And we were just a year past the 1987 stock market crash. That was a long time ago.
Will Chevron's dividend be raised for a 34th straight year next year?
Let's look at the numbers...
Not surprisingly, with oil prices in the teens, free cash flow is expected to plummet this year to $5.5 billion from more than $13 billion a year ago. And it will be just one-third of the total from 2018.
In fact, this year's free cash flow will likely be Chevron's lowest since 2016. SafetyNet Pro isn't a fan of declining cash flow. An even bigger infraction is paying out more in dividends than is generated in free cash flow. Chevron checks that box too. | | | SafetyNet Pro is a groundbreaking tool that predicts dividend cuts with stunning accuracy. With it, you can determine the dividend safety rating of nearly 1,000 stocks. Access to SafetyNet Pro is reserved exclusively for subscribers of Marc's newsletter, The Oxford Income Letter. To learn more about SafetyNet Pro and The Oxford Income Letter, click here now. | | |
This year, Chevron is projected to pay out $9.8 billion in dividends, nearly twice the amount of free cash flow it will bring in. Last year, the payout ratio was a more sustainable 68%. | | | Saudis Exploiting Pandemic to Hurt America?
That's exactly what they're doing, according to Texas Sen. Ted Cruz. "They're supposed to be our damn friends," Cruz said.
Discover the sinister Saudi payback plan against the U.S. | | | It should be noted that prior to the COVID-19 crisis, a 68% payout ratio was considered fine. However, I have made the SafetyNet Pro model more conservative because of the financial devastation that is occurring.
Now, to be comfortable that a dividend is secure, I want to see a payout ratio of 50% or lower. So last year's 68% is above that new threshold, and the rating falls a notch as a result.
On the plus side, the oil producer has a healthy balance sheet. That's important for weathering this storm. And that 33-year track record is meaningful.
Last week, on the company's conference call, CEO Michael Wirth said Chevron's top financial priority is to protect its dividend. I'm sure shareholders enjoying the current 5.8% yield would agree.
Like AT&T's (NYSE: T) rating in last week's analysis, this stock's dividend safety rating has slipped - partially because of the new more conservative guideline, but also because of falling cash flow.
While Chevron's dividend safety rating is low, I don't necessarily expect a dividend cut this year. However, if free cash flow doesn't rebound in 2021, the three-decade-plus streak of annual dividend increases could be in jeopardy.
Dividend Safety Rating: D If you have a stock whose dividend safety you'd like me to analyze, leave the ticker symbol in the comments section.
Good investing,
Marc
P.S. The Walt Disney Company (NYSE: DIS) just suspended its dividend. And we saw it coming...
SafetyNet Pro had Disney rated an "F" for safety. SafetyNet Pro is a groundbreaking tool that predicts dividend cuts with stunning accuracy. With it, you can determine the dividend safety rating of nearly 1,000 stocks.
With it, you can know which dividends - like Disney's - to steer clear of.
Access to SafetyNet Pro is reserved for subscribers to my monthly newsletter, The Oxford Income Letter.
If you don't already have access, you can learn more about SafetyNet Pro and The Oxford Income Letter here. | | | | | | Top Three Coronavirus Stocks to Buy Now
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The Oxford Club is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that although our track record is highly rated by an independent analysis and has been legally reviewed, investment markets have inherent risks and there can be no guarantee of future profits. The stated returns may also include option trades. 
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