Kelley Wright is the chief investment officer and portfolio manager of IQ Trends Private Client Asset Management and the managing editor of the Investment Quality Trends newsletter. He entered the industry in 1984 as a stockbroker; first at a private investment boutique and later at a major NYSE wire house. In 1990, Mr. Wright left the sell side of the industry for private investment management and has served as chief investment officer for three money management firms.
Names like Chevron have been growing their dividends "since the earth cooled," says Kelley Wright, who explains why that is so important when evaluating energy stocks.
Oil is on the minds of a lot of investors and traders on a daily basis these days, but where is the value there? My guest today is Kelley Wright to talk about that. So, Kelley, you’re seeing some value in oil companies these days. Talk about that.
We are. Chevron Texaco—but we just call it Chevron (CVX) now. I just aged myself. It has a phenomenal track record of increasing the dividend at least 10% a year, and they’ve been doing it pretty much since the earth cooled, so doing it for a long time. But they just raised it another 11% again.
So, they’re paying about $3.60 a share. But more importantly, whenever Chevron offers a yield of at least 3.5%, that’s a great historically repetitive value for them, and they’re right in that range right now.
Exxon Mobil (XOM) just increased their dividend by about 22%. The single largest dividend increase at any one time in history for them. They offer tremendous value. ConocoPhillips (COP), another big oil company, great dividend yield, right around 4%.
So, what we’re seeing then is really historically repetitive areas of pretty high yield for some of the biggest, best capitalized, well known oil companies that there are. So, the market’s telling us there’s value there, you just kind of have to take advantage of it.
Does the price of oil play into your decision making at all? Even though they are of great value right now, if you see the price of oil decreasing, does it play into the decision?
Not the way that we do analysis of a company. Really, what’s important to us is where are they today in terms of their dividend yield when compared to their long-term history of dividend patterns.
So, if oil is $25 a barrel and Chevron yields 3.5%, I’m buying Chevron. If Occidental (OXY) is at their area…I mean, I don’t really care what the price of oil is, but I do care desperately that my companies are yielding at the high end of their historical range.
All right, so you mentioned 3.5%. At what percentage would you say the value is starting to decrease, now it’s time to sell and wait again?
Chevron, for example, they have to get to about a 1.6% dividend yield. Based on the current dividend, you’re talking about $180 a share. They’re about $102, $103, something like that, so they’ve got an awful lot of upside, as far as them.
Exxon has a little bit of a different dividend yield profile, but we’re still looking at about $155, $160 a share or so. And then Occidental, which has an entirely different profile than those other two, they can go way, way up in the $100s before we get anywhere near to overvalue for them.