Chevron Corp (CVX) stock already yields 4.5% today and the oil and gas company is likely to hike its dividend in Q4. Chevron has raised its dividend every year for the past 36 years. This makes CVX stock attractive to value investors.

CVX closed at $144.99 on Friday, Aug. 9, down 10.4% from a recent peak of $161.97 on July 18. Moreover, CVX stock is off over $20 or -12% from its high this year of $164.69 on April 29.

Given that its $6.52 annual dividend per share (DPS) gives CVX a 4.50% dividend yield today, value investors are attracted to the stock.

Dividend Is Likely to Rise

Chevron can easily afford to keep paying its dividend. In Q2, based on results released on Aug. 2, it produced a giant $6.3 billion in cash flow from operations (CFFO). Its dividend cost the company just $3.0 billion, so the cash flow more than twice covered the dividend payment.

This was despite a lower net income result over last year ($4.4 billion vs. $6.0 billion last year). Its working capital requirements were lower. That kept the $6.3 billion CFFO on par with last year.

Moreover, each year, the company finds the resources to raise its dividend. It has hiked the DPS each year for the past 36 years. One reason for this is that the company continues to buy back shares. That lowers the dividend cost requirement and allows the DPS to rise.

Dividend Yield Will Rise 

Last year Chevron announced a 7.95% dividend hike on Oct. 27, i.e., with its Q3 earnings results. This was after a 6.33% hike the year earlier.

So, assuming Chevron hikes its dividend at least 6% in Q4, that could raise the DPS from $6.52 annually to $6.91. As a result, at today's price, the stock has an “implied” yield of 4.76% (i.e., $6.91/$144.99).

This is very exciting to value investors, as it will likely be a catalyst to push CVX stock higher.

For example, Seeking Alpha reports that the stock's average dividend yield over the past 4 years has been 4.30%. Similarly, Morningstar reports that the stock has a trailing 12-month (TTM) yield of 4.33% and a 5-year average of 4.20%. 

So, it's reasonable to assume that sometime in the next year or so, especially after a dividend hike, CVX stock could rise to the point where its average yield is 4.30%.

That means CVX stock could be worth as much as $160.70 per share. This can be seen by dividing the forecast DPS of $6.91 by 4.30% (i.e., $6.91/0.043 = $160.70).

That implies an upside of at least 10.8% (i.e., $166.70/$144.99-1 = +10.84%).

Moreover, analysts agree that CVX stock looks significantly undervalued here.

Analysts' Price Targets

For example, Barchart's survey of analysts shows a mean price target of $178.95 per share. That is 23.4% higher than today's price. Similarly, Yahoo! Finance says its survey of 22 analysts has an average $177.49 price target.

But how well have these analysts done in the past? Are their price targets likely to be hit? AnaChart, a new sell-side analyst tracking service, shows this.

For example, AnaChart says its survey of 25 analysts who have written recently on Chevron shows an average $177.70 price target. That is over 22.5% higher than today's price.

AnaChart also shows that many top analysts have good track records predicting CVX's price.

The table above shows that the top 3 analysts who have performed well in the stock have price targets ranging from $160 to $170 to $200 per share. 

For example, Jason Gabelman of TD Cowen has hit his price target on CVX over 85.7% of the time he has made a price prediction. His target price is $160 per share or 10.3% over today's price. That is close to my price target of $160.70, based on the stock's dividend yield target price.

Similarly, Alastair Syme, of CITI, has a $170 target and has met his target price almost 92% of the time.

The bottom line is that analysts all predict higher prices for CVX stock. It appears deeply undervalued here, which makes it attractive to value investors. It looks to be worth $160.70 per share, or 10.8% higher than today's price.