This overlooked area is a key growth factor for this magnificent dividend stock

Chevron (CVX 1.01%) he has an elite record increasing its dividend. The oil giant posted its 37th consecutive dividend hike earlier this year, the second-longest current streak in the oil space. The company has grown its payout twice as fast as its closest peer in recent years, including 8% earlier this year.

One of the secrets to its success is that Chevron focuses on returns over growth, which means it doesn’t chase the hottest spots in the oil patch. Instead, it will invest capital where it can earn attractive returns. One overlooked place to invest in these days is the US Gulf of Mexico. This strategy could pay big dividends in the coming years.

An undervalued asset

Chevron has a globally diversified portfolio of upstream, midstream and downstream assets, referring respectively to production, pipelines and chemicals and refining. This business model allows Chevron to maximize the value of each hydrocarbon molecule it produces. The company is also focused on maximizing returns by investing in areas where it produces low-cost and ideally less carbon-intensive oil and gas.

The US Gulf of Mexico is one such location. The company’s operations produce some of the lowest in the world carbon intensity oil and gas. In addition, it can generate attractive returns by investing in increasing production in the region.

Chevron recently began water injection operations at two projects to boost its oil and gas recovery at the Jack/St.. Malo and the deepwater Gulf of Mexico Tahiti facilities. The company noted that these projects will maximize returns on the existing resource base. They will also bring the company one step closer to its goal of growing production in the region up to 300,000 net barrels of oil equivalent per day (BOE/d) by 2026.

These are just a few of the many projects Chevron has underway in the region. It is close to delivery first oil for the development of Anchor, which came in under budget even though it implemented several innovative technologies. These projects position Chevron to deliver high cash margins and low-carbon production growth.

Chevron has more growth potential in the region. It is one of the largest tenants in the basin. It also has leading technology capabilities and attractive exploration opportunities near existing infrastructure and in border areas. These factors put Chevron in a strong position to continue to grow production in the region.

A potential stimulant

Chevron is quietly looking to strengthen its position in the Gulf of Mexico. The company agreed to purchase Hess (HES 0.73%) last year in a nearly $60 billion business. The main factor is the company’s position in the oil-rich Stabroek block offshore Guyana. Hess also has a position in the Bakken region, which would boost Chevron’s position in US onshore resources. In addition, it operates in the US Gulf of Mexico and Southeast Asia.

The The focus of this agreement was on Guyanaand rightfully so so, whereas that position of world-class resources would indeed move the needle for Chevron. However, with all eyes on Guyana, most investors have overlooked that Hess also operates in the US Gulf of Mexico, producing about 30,000 BOE/d. It is a highly complementary position to Chevron’s existing assets in the region, meaning Chevron could invest in capital-efficient development projects to increase its production. This would increase his profits from this low and lower cost carbon intensity region. They add to the overall exceptional strategic fit of the Hess acquisition.

One of many growth factors

Chevron expects to grow its free cash flow by about 10% annually over the next few years, thanks in part to under-the-radar assets like its position in the Gulf of Mexico. Meanwhile, the addition of Hess, which would enhance its already strong position in the region while adding other growth drivers, would help accelerate its growth. It could more than double the company’s free cash flow by 2027. These combine to make Chevron a compelling dividend growth stock. The oil giant should have plenty of fuel to maintain its magnificent dividend growth streak for years to come.