We recently compiled a list of the 8 Cash-Rich Dividend Stocks To Invest In Now. In this article, we are going to take a look at where Chevron Corporation (NYSE:CVX) stands against the other cash-rich dividend stocks.
Cash remains a critical asset, as companies with strong cash reserves tend to attract investors regardless of the economic climate. A robust cash position allows businesses to enhance shareholder value through activities such as paying dividends, buying back shares, or pursuing strategic acquisitions. That said, cash has underperformed compared to other assets, but with yields at their highest in years and economic and inflation uncertainty, many people have chosen to keep their extra funds in money markets, certificates of deposit, high-yield savings accounts, and Treasury bills. A survey conducted in July by Empower found that 49% of Americans felt more secure holding cash than other investments. The survey, which polled 1,009 US adults, also found that cash made up more than 27% of respondents’ portfolios. However, financial experts like Luis Alvarado, global fixed income strategist at Wells Fargo Investment Institute, generally recommend keeping only 3% to 5% of a portfolio in cash for emergencies and liquidity needs.
Also read: 10 Best Mid-Cap Dividend Aristocrats To Buy
The US financial markets are currently supported by an enormous pool of liquidity, with substantial funds held in money market accounts and other short-term investments. According to T. Rowe Price, US money market funds alone managed nearly $6 trillion in assets as of mid-December 2023—an increase of over 60% since December 2019, just before the onset of the pandemic. As of the week ending December 4, a record $6.77 trillion is held in money market funds, according to the Investment Company Institute. This amount is nearly half a trillion dollars higher than the funds held in September before the Federal Reserve implemented its first interest rate cut in four years, followed by another in November.
A report from treasury advisory firm Carfang Group noted that corporate cash reserves have steadily grown since the pandemic began. The ongoing strength of the economy has enabled companies to set aside more funds and earn returns on short-term investments. As of Q1 2024, US corporations increased their cash holdings to an all-time high of $4.11 trillion, driven by a robust economy and relatively high interest rates, which enhanced returns. This represents a 12.6% increase from the same period last year and $1.28 trillion more than pre-pandemic levels.
Despite market volatility driven by high interest rates and geopolitical tensions, corporate financial health has remained strong, showing resilience in the first half of the year. According to Bloomberg data, nearly 1 in 10 non-financial companies in the broader market—over 30 firms—earned more in interest income than they spent on debt expenses in the first quarter. While this figure has remained consistent with the previous year, the interest income generated by these companies has increased by approximately 60%. Mark Cabana, head of US rates strategy for Bank of America Corp.’s securities business, made the following comment about the situation:
“Corporates are earning more money by holding cash. Many companies are comfortable with where the economy is as well as with elevated cash levels because they are getting a return for it.”
Wells Fargo suggested that income investors might consider dividend-paying stocks, noting that US large-cap companies have amassed over $2.4 trillion in cash on their balance sheets and could opt to start or increase dividend payouts.
Our Methodology:
For this article, we began by using a stock screener to find companies with a price-to-free-cash-flow ratio below 15. From this list, we selected companies with a market capitalization of at least $20 billion. Next, we focused on companies with the highest trailing twelve-month operating cash flows, ranking the stocks in ascending order based on their TTM operating cash flows. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An aerial view of an oil rig at sea, the sun glinting off its structure.
Chevron Corporation (NYSE:CVX)
Operating Cash Flow (TTM): $35 billion
Chevron Corporation (NYSE:CVX) is an American energy company that specializes in oil and gas. The company has evolved into one of the world’s top energy companies. Each year, it invests billions to expand its operations, using both organic growth and acquisitions to drive expansion. These investments enhance profitability and cash flow. In the third quarter of 2024, the company generated $9.7 billion in operating cash flow, up from $6.3 billion in the previous quarter. It also returned $7.7 billion to shareholders through dividends and share repurchases during the quarter. CVX is one of the best cash-rich stocks that pay dividends.
Chevron Corporation (NYSE:CVX) posted strong earnings in the third quarter of 2024, with revenues totaling $50.67 billion, exceeding analysts’ expectations by $1.63 billion. The company also saw a 7% increase in global production compared to the previous year, reaching nearly 3.4 million barrels of oil equivalent per day (BOE/d). This growth was driven by record production in the Permian Basin and the acquisition of PDC Energy.
On November 1, Chevron Corporation (NYSE:CVX) declared a quarterly dividend of $1.63 per share, which fell in line with its previous dividend. Overall, the company has been rewarding shareholders with growing dividends for the past 37 consecutive years. As of December 16, the stock offers a dividend yield of 4.37%.
As of the end of Q3 2024, Chevron Corporation (NYSE:CVX) was included in 63 hedge fund portfolios, slightly down from 64 in the previous quarter, according to Insider Monkey’s database. The total value of the stakes held by these hedge funds exceeds $21 billion.
Overall CVX ranks 1st on our list of the cash-rich dividend stocks to invest in now. While we acknowledge the potential of CVX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.