My second purchase during this past week occurred on Friday, when I bought shares of Chevron (CVX), one of the largest integrated oil and gas companies in the world. My most recent previous purchase of CVX was just two weeks ago. A further decline in the stock price motivated me to make another purchase.
I think CVX is slightly undervalued at the current price. It has a P/E of 9.6 (vs. a 5-year historical average of 9.3), P/S of 1.1 (vs. 0.8), P/B of 1.6 (vs. 1.7), and dividend yield of 3.4% (vs. 3.2%). Using a Dividend Discount Model with a dividend growth rate of 8.5% (slightly lower than recent dividend increases) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $127.10. Morningstar gives a fair value of $130.00 and a 4-star rating. The average of those two estimates is $128.55, which implies an 8.9% margin of safety at my purchase price.
I bought 15 shares of CVX at the price of $117.14 per share plus commission, giving me a 3.40% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $15.00 from this purchase, which will add a total of $60.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money and it reduced the cost basis for my CVX position in that account by 1.5%. I now have a total of 70 shares of CVX and I will receive combined quarterly dividends of $70.00. My forward 12-month dividend total increases to $4,131.
Nice I also picked up some more CVX last week. Great yield, good growth and an end product that is used in just about everything. Plus there's a dividend increase coming in April.ReplyDelete
PIP: It's nice to see that you also bought some CVX last week. The energy sector continues to be one of the more attractive areas in the market and CVX remains a solid pick within that area. It's my third-largest position now, so I will likely look elsewhere for my next few purchases. I would not mind increasing my much smaller XOM position to bring its weight up in my portfolio.Delete