Unlock the Potential of Dividend-Paying Stocks for Your Portfolio
Chevron: A Reliable Dividend Player in the Oil and Gas Sector
Chevron (CVX), an oil and gas producer, reported better-than-expected results in the third quarter of 2024. The company returned $7.7 billion to shareholders during this period, with $4.7 billion in share buybacks and $2.9 billion in dividends. At a quarterly dividend of $1.63 per share (or an annualized $6.52), CVX offers a dividend yield of 4.1%. Goldman Sachs analyst Neil Mehta has reiterated a buy rating on CVX and slightly raised the price target to $170 from $167. This reflects his updated earnings estimates. Mehta remains optimistic about Chevron due to expectations for volume and [free cash flow] inflection driven by Tengiz in Kazakhstan, where the company is demonstrating strong execution progress. He also highlighted the company's attractive capital returns profile that includes dividends and buybacks, with expectations of a yield of around 10% in both 2025 and 2026. Additionally, favorable updates on Chevron's Gulf of Mexico projects, where the company aims to increase production to 300 Mb/d by 2026, and its cost reduction efforts, which aim to generate $3 billion of structural cost savings by the end of 2026, are other positive factors. Mehta ranks No. 391 among more than 9,200 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, delivering an average return of 11%.
Chevron's consistent performance and focus on shareholder returns make it a reliable dividend player in the oil and gas sector. Its ability to navigate through volatile market conditions and deliver value to shareholders is a key strength.
Energy Transfer: A Midstream Energy Company with Attractive Yields
Energy Transfer (ET), a midstream energy company structured as a limited partnership, made a quarterly cash distribution of $0.3225 per common unit for the third quarter, representing a 3.2% year-over-year rise. With an annualized distribution of $1.29 per common unit, ET pays a yield of 6.8%. JPMorgan analyst Jeremy Tonet reaffirmed a buy rating on ET and raised his 12-month price target to $23 from $20. The analyst noted that the company's third-quarter adjusted earnings before interest, taxes, depreciation and amortization of $3.96 billion exceeded JPMorgan's estimate of $3.912 billion and the Street's consensus of $3.881 billion. While Energy Transfer reiterated its full-year adjusted EBITDA guidance in the range of $15.3 billion to $15.5 billion, Tonet believes the company is positioned to surpass the high end of that guidance as the full impact of its optimization efforts is not yet reflected in the outlook. Tonet further highlighted that the integration of the WTG Midstream acquisition is on track and Energy Transfer has approved several projects to improve reliability, reduce losses and enhance system efficiencies. Overall, Tonet thinks ET is trading at a discounted price, offering a lucrative entry point for investors. He sees [natural gas liquids] logistics, particularly [U.S. Gulf Coast] and Marcus Hook exports, as key growth engines for ET, given global LPG demand growth. Tonet ranks No. 420 among more than 9,200 analysts tracked by TipRanks. His ratings have been successful 61% of the time, delivering an average return of 10.5%.
Energy Transfer's midstream operations and attractive yields make it an appealing investment option for those seeking exposure to the energy sector. The company's focus on optimization and growth is likely to drive future performance.
Enterprise Products Partners: A Midstream Energy Services Leader
Enterprise Products Partners (EPD), a partnership that offers midstream energy services, distributed $0.525 per unit for the third quarter, representing a 5% annual increase. With an annual distribution of $2.10 per common unit, EPD offers a yield of 6.4%. The JPMorgan analyst said EPD's Q3 performance benefited from three natural gas processing plants that started commercial operations over the past year. The third quarter also saw wide natural gas spreads between Waha and other market hubs. At its Investor Day, EPD emphasized that one of its key operating objectives for 2024 was to enhance the reliability and utilization rates of its two propane dehydrogenation (PDH) plants. Tonet said EPD expects its PDH enhancements to deliver an incremental $200 million in cash flows. Capital allocation is favorable, with EPD repurchasing $76 million in stock in the third quarter, up from $40 million in the second quarter. Enterprise plans to continue making buybacks in an annual range of $200 to $300 million over the remainder of 2024 and 2025. Tonet continues to be bullish on EPD stock, stating that it "consistently delivered strong results throughout the various cycles, weathering downdrafts yet still participating during upward cycles." His optimism is also based on EPD having the largest and most integrated natural gas liquids (NGL) footprint in North America, supporting superior operating leverage. He believes EPD's financial flexibility gives it an edge over its peers. Given all these positives, Tonet reiterated a buy rating on EPD stock and increased his price target to $37 from $34.
Enterprise Products Partners' leadership in midstream energy services and its focus on operational excellence make it a standout investment. The company's ability to generate consistent cash flows and deliver value to shareholders is a testament to its strength.
Risks and Rewards of Boeing
Boeing's Path to Recovery
The stock undoubtedly holds significant upside potential. As previously explored, its recovery isn't solely reliant on ramping up 737 MAX production or resolving issues within its defense business's fixed-price development programs. These aspects are crucial elements of the recovery journey and are well within Boeing's grasp.However, the new CEO can restore a great deal of investor confidence in various ways. For instance, by recalibrating investor expectations to more realistic targets compared to the $10 billion in free cash flow goal set by Ortberg's predecessor, Dave Calhoun. Ortberg has also been on record stating that Boeing's defense business needs to enhance its estimate-at-completion (EAC) processes. If a company can't get its internal EAC right, it's highly likely to disappoint external stakeholders with its forecasts. Additionally, Ortberg is taking the opportunity to review the company's portfolio, and the possibility of restructuring could generate value for investors.Putting all these factors together, it becomes evident that much of what Boeing needs to achieve is attainable, and the management has multiple avenues to add value for investors. There is always the cyclical risk of an economic slowdown and its impact on airplane orders, but Boeing essentially has a story of self-help at its core.Risks and Headwinds Facing Boeing
Boeing faces numerous obstacles on its path to recovery. The aerospace sector continues to grapple with persistent supply chain difficulties, creating challenges for both aircraft manufacturers and suppliers. These headwinds make it difficult and costly to boost production. For example, GE Aerospace initially expected to deliver 20%-25% more LEAP engines (which power the Boeing 737 MAX and the Airbus A320neo family) in 2024 compared to 2023. But by the third quarter, its management now predicts a 10% decrease from 2023. Meanwhile, another supplier, Spirit AeroSystems (a company Boeing spun off and now plans to buy back), is burning cash and has warned investors that it may not be able to continue operating.Increasing airplane production won't be a straightforward task and could prove expensive if Boeing is forced to inject cash into Spirit and wait for suppliers to align with planned production hikes. To make matters worse, Boeing's defense business continues to incur losses due to multibillion-dollar charges on fixed-price development programs. Improving its EAC processes will take time and won't have an immediate impact on ongoing projects.The Next Generation of Airplanes
The commercial aerospace industry operates in cycles. New airplanes are introduced (the latest major narrowbodies being the Boeing 737 MAX and Airbus A320neo), which generates cash over several years as delivery volumes increase. Moreover, as this occurs, profit margins expand as the unit cost of production tends to decline.However, the 737 MAX's cash-generating cycle has deviated from the planned trajectory since its first delivery in 2017. The impacts of the two catastrophic accidents leading to 737 MAX groundings, the pandemic, and subsequent supply chain issues have resulted in significant cash outflows at Boeing while debt has accumulated.When considering Boeing's valuation and even accepting a recovery leading to substantial cash generation, investors need to think about the financial position it will be in 10 years when it needs to start investing and preparing for a new airplane to enter the market.A Stock to Consider or Not?
There is upside potential for Boeing's stock, but it is unlikely to be a buy-and-hold stock that will make investors wealthy overnight. There are too many risks involved, and it seems that Boeing will miss out on a significant portion of the cash-generation phase with the 737 MAX. As a result, it will be more suitable for investors seeking a recovery story rather than long-term investors who are willing to buy and forget.Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends GE Aerospace. The Motley Fool has a disclosure policy.