Investors seeking passive income have plenty of alternatives. One of the best strategies is buying stocks that offer attractive dividends. Chevron (NYSE: CVX) stands out as a great example. If you invest in this oil and gas giant, you should be able to sit back and watch the dividend payments flow in regularly.
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The more money you can put to work, the more income you’ll make. How many shares of Chevron would you need to own to receive $10,000 in annual dividends?
Easy math
Fortunately, we don’t have to be mathematical geniuses to perform the calculation. The math for determining how many shares of Chevron you’ll need to make $10,000 in annual dividend income is easy.
Chevron currently pays a quarterly dividend of $1.71 per share. Multiplying $1.71 times four quarters gives us a total of $6.84 in dividends over the next year.
Now that we’ve done the necessary multiplication, we need to do some division. Dividing $10,000 by $6.84 in annual dividends per share equals roughly 1,462 shares. At Chevron’s current share price of around $136.26 (as of market close on May 1, 2025), that translates to an initial investment of $199,212.
That’s a hefty amount to invest in one stock. Because it’s important to have a diversified portfolio, you’ll probably only want to consider such a large investment in Chevron if your portfolio size is well into the millions of dollars.
Growing dividends
The good news is that no matter how much you invest in Chevron, your annual dividend income is likely to grow significantly over time. In January 2025, Chevron announced a 5% increase to its dividend payout. That marked the company’s 38th consecutive annual dividend increase.
Can Chevron keep that impressive streak going? I think so.
One important metric investors look at to determine the ability of a company to increase its dividend in the future is the dividend payout ratio. This ratio is calculated by dividing the total dividends per share paid by earnings per share.
Chevron’s payout ratio stands at roughly 67%. This reflects flexibility for the oil and gas producer to continue paying the dividend at the current level and increasing it moderately without encountering financial difficulties.
However, the payout ratio doesn’t always tell the full story. Free cash flow is arguably an even better financial metric to consider. Chevron generated free cash flow of $15.3 billion in 2024. The company paid dividends of $11.8 billion last year. This shows that Chevron could easily deploy more of its free cash flow to fund the dividend program if it chooses to do so.
Even better, Chevron plans to increase its free cash flow by $10 billion by 2026. The company is boosting production while reducing expenses, an ideal combination for growing free cash flow.
Beyond Chevron’s dividend
Chevron is likely to reward investors in other ways, too. The company repurchased $15.2 billion of its outstanding shares in 2024. It plans to “repurchase shares steadily,” with targeted annual stock buybacks of between $10 billion and $20 billion per year. These stock buybacks represent what some call an “invisible dividend” by reducing the number of outstanding shares, thereby increasing the value of remaining shares.
While Chevron stock hasn’t performed well over the past 12 months, it could return to delivering solid gains for investors. As mentioned, the company is increasing its production. It’s also investing in renewable energy and carbon capture initiatives that could pay off handsomely over the long run.
Should you invest $1,000 in Chevron right now?
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Keith Speights has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
