Chevron investment should bring financial rewards over long term

If you’re looking for long-term growth and dividend income, drill down into Chevron (NYSE: CVX). Its dividend, recently yielding 4.1 percent, is one of the highest among familiar blue chip stocks.

Since peaking this past summer, Chevron shares lost more than 20 percent of their value thanks to the rapid decline in oil prices. The company’s latest quarterly results featured earnings 30 percent lower than a year ago, with management cutting back exploration and production spending plans.

While earnings will almost certainly suffer in the near future if low oil prices linger for a while, it should just be a temporary issue. Many experts expect oil to rebound from below $50 per barrel to at least the $70 to $80 range by the end of 2015. The analysts who follow Chevron are projecting a decline in earnings in 2015 and a rebound in 2016.

Chevron has delivered impressive performance over the years, with total returns averaging 13 percent annually for the past 30 years, and it has raised its dividend for 29 consecutive years. While it may take a couple of years for the oil sector to truly rebound, Chevron will pay you a very nice dividend for your patience and should produce solid returns in your portfolio for years to come. (The Motley Fool has recommended Chevron.)

Ask the Fool

Q: Why do bond prices rise when bond yields fall? – C.T., Starke, Florida

A: Bond prices react to changes in interest rates. Consider this example: If you buy a $1,000, 30-year bond with a 3 percent interest rate, it’ll pay you $30 per year until maturity, when you get your $1,000 back. But if interest rates rise, that 3 percent won’t be able to compete with newer bonds’ higher rates. The value of your bond will have to drop to make it more attractive to buyers.

Someone selling that bond, then, might have to accept, say, $950 for it instead of its original $1,000. The buyer will receive the same $30 annual payments and will receive the same $1,000 at maturity.

When rates drop, bond prices rise, as people will pay a premium for higher-yielding bonds. Learn more at finra.org and treasurydirect.gov.

Q: What’s the best number of stocks to own? – L.J., Saginaw, Michigan

A: It depends, but between eight and 20 is a reasonable range for most people. It’s important to concentrate your money on your best ideas – the companies you believe hold the most promise. If you think a certain 20 stocks are most likely to increase your wealth, it’s silly to spread your limited funds over an additional 10 or 20 (or more) less-promising stocks.

The more stocks you own, the harder it is to keep up with all your holdings, which you should aim to do at least every quarter. (Less often can be OK with some stable, established blue chips.) With 50 companies in your portfolio, you’ll have 200 quarterly reports to read each year. Yikes! Conversely, owning too few stocks can be risky.

My dumbest investment

I would have to say that not holding on to Apple stock was the biggest mistake I ever made. I bought low and sold at a profit, and then guess what – it went up to where I could have made an even better profit. It was dumb not to hold. I wanted to make a profit. Oh, well. – S., online

The Fool responds: Selling a stock too soon is a common regret, and Apple is a stock many are regretting having sold. It’s not crazy to aim for a profit and to sell once you get the profit you were aiming for. But if you take some time to study the company more, you might find that it’s still performing well, still has a bright future and is not yet overvalued. If so, hanging on can make sense.

You might also sell just some of your shares, locking in a profit, while retaining the rest. Remember, too, that it’s not necessarily too late to buy back into a stock you sold and still like. Since you wrote to us, Apple stock rose another 40 percent.