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Focus Should Be on Chevron's Yield

NEW YORK ( TheStreet) -- Chevron (CVX - Get Report) is a company that can report a drop in earnings and revenue and yet still see its stock price move higher. But that move up isn't a plus on the dividend front.

Shares closed at $120.04 on Friday, up $1.53 or 1.29%, with an intraday high of $120.41 on lower-than-average daily volume. That moved the dividend yield to below 3% when the share price ranges between $120.30 and $120.41.

The yield-to-price drop is why many investors including myself are more heavily weighted in companies like ConocoPhillips (COP - Get Report), which offers a 4.5% dividend yield when COP shares trade at nearly $59.

Chevron's payout ratio regarding its dividend yield is a modest 26%, which offers the hope that the company can raise its current annual dividend from $3.60. COP's payout ratio is higher than CVX's at 39%, but this is still considered a manageable and sustainable ratio level.

The following price chart of the five-year history of CVX stock has been embellished by lines demonstrating its trailing 12-month revenue per share and its diluted quarterly year-over-year EPS growth.

CVX Chart CVX data by YCharts

Thanks in part to the company's generous dividend-paying policy and its rising revenue per share, the stock has traded since the beginning of 2011 in a range between $90 and $121. The 10-year chart below illustrates colorfully the magnificent ascent of CVX stock to its current all-time highs.

CVX Chart CVX data by YCharts

Chevron reported a profit Friday morning of $6.18 billion, or $3.18 a share. This was down from $6.47 billion or $3.27 a share from the same quarter last year. The company said the most recent quarter included net charges of $439 million, compared with $504 million a year earlier.

The second-largest energy company in the U.S. said Friday that its daily oil production in North America was about the same as the prior-year quarter at 455,000 barrels. The company said on its earnings call that production went down about 2.5% at its international sites to 1.3 million barrels a day.

Sales and other operating revenue in the first quarter of 2013 were $54 billion, down from $59 billion in the year-ago period, mainly due to lower prices for crude oil.

A contributing factor to the rising streams of revenue and EPS is Chevron's natural-gas business. The company reported that it sold close to 10.6 billion cubic feet of gas daily in the first quarter. That is a 3.2% increase over the year-ago.

The price of natural gas in the U.S. rose 25% to an average of $3.11 per 1,000 cubic feet, the company said. Friday's closing price for natural gas was around $4.15, and West Texas Intermediate crude oil closed at $93.36, down 28 cents.

Capital and exploratory expenditures in the first three months of 2013 were $8.9 billion, compared with $6.4 billion in the corresponding 2012 period.

"The amounts included approximately $453 million in 2013 and $361 million in 2012 for the company's share of expenditures by affiliates, which did not require cash outlays by the company," Chevron said.

During Friday's call, Morgan Stanley's Evan Calio asked about the longer-term capital expenditure and cash-return strategy that Chevron expects going forward. He said he was asking in "... the context of my view Chevron's relative free cash flow inflection in 2014, '15 time period, as you begin to see the cash benefit of these relatively heavier and current period of capital investment."

Calio continued: "And the question hence becomes, do you believe that when you likely have incremental cash during this period, the cash returns to shareholders via buybacks or dividends increase or that you see additional reinvestment opportunities in the portfolio to maybe replicate this '14 to '17 growth period. How do you think about that?"

Chief Financial Officer and Vice President Patricia E. Yarrington first addressed the sizable queue of projects Chevron has developed and how those projects are focused on the company's belief that "... the best way over time that we create value for our shareholders is by making the right investment choices."
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