Today I’m going to tell you (again) about one of my favorite oil companies: Chevron Corp. (NYSE: CVX). Oil now sells for over $100 a barrel, with little sign of reverting lower. American oil consumers seem to be waiting for gas prices to pop above $5 a gallon this summer.
And if you’re among them, you should be looking for ways to position your portfolio now before the crowds.
So with regard to Chevron, you might be tempted to ask:
“How much do shares sell for?”
That’s not a question an investor should ever ask – unless maybe they’re interested in trading options – but that’s a different story.
For instance, right now, Chevron sells for just over $100 a share. You might be thinking that $100 is expensive. But $100 is a meaningless number without some context.
At the bare minimum, you should look at the price in relation to earnings. For instance, if you look at a chart of Chevron’s share price over the past 10 years, you might say to yourself that Chevron is now much more expensive than it was in 2004 – when it sold for around $40 a share.
But at closer inspection – on a price-to-earnings (PE) basis – today you’re paying LESS than you were back in 2004.
Today, Chevron sells for cheaper than it did 8 years ago. Its earnings have risen even faster than its share price – and even better, it has passed along those excess earnings to shareholders in the form of a constantly rising dividend:
That’s the kind of company you want to own: rising earnings resulting in rising dividends and a rising share price.
I wrote back in October of 2010 that you should look to buy Chevron under 10 times earnings. That’s a historically cheap price to pay for this company, and I think it will give you a long term income stream –especially if oil and gas prices continue to rise.