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Pro Analysis

Jefferies predicts Chevron's big dividend will get even bigger, makes stock a top pick

A floorhand operates a Chevron oil drilling rig near Taft, California.
Chip Chipman | Bloomberg | Getty Images
A floorhand operates a Chevron oil drilling rig near Taft, California.

Jefferies on Monday added Chevron to its "franchise picks" list, citing the potential for cash flow levels to increase due to a range of investments that began in 2011 and are now coming to fruition.

"We believe the company is positioned to generate significant free cash flow moving forward, and estimate a free cash flow yield of 10 percent in 2018," equity analyst Jason Gammel wrote in a research note.

The analyst says oil production in the Permian region — a rich crude formation beneath Texas and New Mexico — could nearly double by 2020, and established operations in Australia could become "cash cows."

The inflection point in cash is likely to be used by Chevron's management to pay down debt and increase dividend payments, according to Jefferies.