Key Points

Oil and gas giant Chevron has an industry-leading breakeven point on its upstream portfolio. The company can support its massive capital return program without jeopardizing its financial health. With 38 years of dividend increases and a high yield, Chevron is an intriguing income play. 10 stocks we like better than Chevron ›

Chevron(NYSE: CVX) is an integrated oil and gas major with a growing exploration and production business, sizable refining segment, investments in low-carbon solutions, and more. But the stock has fallen roughly 16% from its 52-week high -- a swift decline considering the high came less than two months ago.

With a yield of 4.8%, here's why Chevron is an excellent dividend stock for passive income investors to scoop up now.Image source: Getty Images.

Chevron continues to deliver results even at mediocre oil prices

Brent crude oil prices (the international benchmark) are at multi-year lows -- which has put pressure on Chevron's margins and led to lower revenue and earnings growth. In turn, these factors have weighed on its stock price.CVX data by YCharts

However, Chevron has become a much more efficient company. On its first-quarter earnings call, Chevron said it was delivering growth initiatives -- led by short-cycle onshore projects and high-margin offshore projects that are expected to generate an incremental $9 billion of free cash flow (FCF) in 2026 at a $60-per-barrel Brent price, which is below the current price.

Chevron cited Wood Mackenzie data showing it has the lowest upstream breakeven of its peer group -- around the low $30-per-barrel Brent range. According to Wood Mackenzie, that gives Chevron a lower breakeven than ExxonMobil, Shell, TotalEnergies, BP, ConocoPhillips, Occidental Petroleum, Diamondback Energy, and EOG Resources.

In its investor presentation on May 6, Chevron said it expects to achieve a 50% increase in its Gulf Coast production by 2026 thanks to the expansion of its deepwater Anchor project, which achieved first production in August 2024. Lower drilling costs have helped keep Anchor under budget.

In sum, Chevron is still delivering excellent results despite lower oil prices. Its highly efficient production portfolio supports its massive buyback program.

Chevron's buybacks remain at elevated levels

Chevron bought back a record amount of stock each year over the last three years -- $11.26 billion in 2022, $14.94 billion in 2023, and $15.23 billion in 2024.

With buybacks of $3.9 billion in the first quarter and plans for $2.5 billion to $3 billion in buybacks in the second quarter, Chevron is on schedule to pull back slightly on stock repurchases in 2025 but still return a boatload of cash to shareholders. The move to keep a lid on buybacks makes sense given lower oil prices and its planned deal to purchase Hess.

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Chevron rewards shareholders with dividends and buybacks. It spends about $3 billion per quarter on its dividend, which it has increased for 38 consecutive years. The decline in Chevron's stock price, paired with consistent dividend raises, has pushed Chevron's yield up to 4.8%. That's a considerably higher level than the S&P 500 average of 1.3% and even the energy sector average of 3.5%.

It's worth mentioning that buybacks and dividend raises are not coming at the expense of Chevron's balance sheet. The company exited the recent quarter with a new debt ratio of 14.4% -- which is lower than its target range of 20% to 25%. That means Chevron's net debt (which is debt minus cash equivalents and marketable securities) is 14.4% of its net debt plus stockholders' equity. It basically shows how dependent a company's capital structure is on debt -- and 14.4% is very low for a capital-intensive energy company.

Chevron remains a passive income powerhouse

Chevron is a highly reliable dividend stock given its multi-decade track record of raising its payout and high margins even at current oil prices. Its efforts to reduce its breakeven and invest in projects that can generate high FCF even at $60 Brent sets the stage for more buybacks and dividend raises.

Chevron is taking advantage of the sell-off in its stock by repurchasing shares. Buybacks benefit shareholders by reducing the outstanding share count, thereby increasing earnings per share because there are fewer shares to go around. So investors who hold their Chevron shares will come to progressively own a larger percentage of the company.

Add it all up, and Chevron is a no-brainer buy for boosting your passive income stream.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron and EOG Resources. The Motley Fool recommends BP and Occidental Petroleum. The Motley Fool has a disclosure policy.

Near a 52-Week Low, Here's Why This 4.8%-Yielding Dividend Stock Is a Top Buy for Passive Income was originally published by The Motley Fool