Chevron Could Raise Its Dividend Next Month

Chevron Corp (CVX) could raise its dividend per share (DPS) next month, as it has done for the past 38 years. That implies the value of CVX stock could be 15% too cheap, based on its average yield. Shorting out-of-the-money puts also works here.

CVX closed at $147.75 on Friday, Dec. 19. It’s well off a recent peak of $157.72 on Oct. 31. But, if Chevron raises the DPS by 5% as expected in January, it could be worth $170.27, or over 15% higher than Friday’s close. This article will show why and some ways to play CVX.

I discussed how Chevron could afford to raise its dividend in my Nov. 23 Barchart article (“Chevron’s Latest 5-Yr Plan Implies a Major Dividend Hike…”).

Based on an expected 5% increase (last year’s hike was 4.9%), the annual dividend per share (DPS) could rise from $6.84 to $7.18.

That would give CVX an annual yield of 4.86%. This is well over its average yield over the last 5 years.

For example, Yahoo! Finance reports that the 5-year historical yield has been 4.18%. Morningstar says it’s been lower at 4.07%. However, Seeking Alpha says it’s been 4.40%.

The average of these surveys is 4.2168%. So, applying this average to the expected DPS of $7.18:

 $7.18/0.042168 = $170.27 target price

That is over 15% higher than Friday’s close:

$170.27 / $147.75 = 1.1524 -1 = +15.2% upside

In other words, if we assume the stock will revert to its average dividend yield over the next year, it could rise by over 15%.

That makes it easy to either just own CVX shares or also sell out-of-the-money (OTM) put options, to set a lower potential price. That way, an investor can get paid a monthly income while waiting to buy in at a lower price.

I discussed a similar play in my last Barchart article. I suggested selling short the $140 strike price expiring Dec. 26, 2025, put for a premium of 98 cents. That provided the short-seller an immediate yield of 0.70% over the last month for a strike price about 6% below the trading price.

On Friday, those puts are down to just 7 cents at the midpoint. In other words, it’s been a successful short play. It makes sense to roll this over to next month sometime this week.

For example, the Jan. 23, 2026, expiry chain shows that the $140 strike price put contract has a midpoint premium of 99 cents. That’s close to last month’s income.

This provides an investor who secures $14,000 with their brokerage firm an immediate income of $99. That works out to a one-month yield of 0.707% for the next month.

In other words, if an investor can keep doing this trade each month over the next year, the expected return is 8.4852%. That is over half of the expected 15% upside in CVX stock.

Moreover, there appears to low downside here. The delta ratio is only -19.39%, implying less than a 20% chance that CVX will fall to $140 over the next 34 days. That is based on past volatility patterns.

And even if that occurs, the breakeven point is $139.01 (i.e., $140-$0.99). That is 5.92% lower than Friday’s close. Moreover, it might possibly be lower, depending on how many months the investor has gained income by shorting OTM puts.

The bottom line is the CVX stock looks cheap here, based on its average dividend yield. One way to play it is to sell short OTM puts for income.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com