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Pro Analysis

Chevron upgraded at Morgan Stanley on dividend growth, oil rebound

The Chevron logo is shown at Chevron Plaza in Calgary, Alberta.
Brent Lewin | Bloomberg | Getty Images
The Chevron logo is shown at Chevron Plaza in Calgary, Alberta.

Morgan Stanley on Tuesday upgraded Chevron to overweight from equal weight because growing cash flow will support its hefty dividend and the company is the most highly leveraged among oil majors to recovering crude prices.

"Going forward, CVX's investments and growth is set to shift to shorter-cycle opportunities, reducing execution risk, improving capital efficiency and enhancing return on capital. The inflection in FCF [free cash flow] and evolution of CVX's portfolio should support relative and continued dividend growth, management's stated top priority," wrote equity analyst Evan Calio in a research note.

At the current levels, Chevron pays a dividend yield of 4.12 percent, the fourth highest among all S&P energy companies. The shares are up more than 15 percent year to date compared with a 4 percent gain for the S&P 500 index.