Cheniere Energy (LNG 0.12%) sees a bright future for its investors. The liquefied natural gas (LNG) producer recently unveiled its "20/20 vision" for returning capital to shareholders, fueled by the explosive growth it sees ahead for its LNG operations. A key aspect of that vision is a fast-growing dividend.
Here's a look at what investors can expect from the LNG stock over the next few years.
NYSE: LNG
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Cashing in on LNG
Cheniere Energy recently approved a revised comprehensive capital return plan, building upon the strategy it outlined late last year. The foundation is its 20/20 vision to generate more than $20 billion of available cash through 2026 and a run rate of over $20 per share of distributable cash flow. That's an increase from last year's outlook of producing $10 billion of cumulative distributable cash flow through 2024 and a run rate of $15-$17 per share of distributable cash flow on a long-term basis.
Driving the acceleration is the company's ability to execute its strategy. Cheniere has secured several long-term sales and purchase contracts as a result of robust market conditions for LNG, driven partly by the European energy crisis. That's allowed it to move forward with construction on its Corpus Christi LNG (CCL) Stage 3 project. It made a final investment decision on that project in June, putting it on track to start supplying LNG to customers by the end of 2025. Once complete, it will enable the company to produce more cash that it can allocate toward growing shareholder value.
Enhancing its capital return strategy
Cheniere Energy redeemed over $4 billion of debt this year thanks to the strong market conditions. That's a significant acceleration from last year's plan to pay down $1 billion of debt annually until it achieved investment-grade credit metrics. This accomplishment led the company to outline a new long-term plan for a sustainable balance sheet. It expects to continue paying down debt, targeting a long-term leverage ratio of 4.0 times while maintaining its investment grade credit metrics through the construction of CCL Stage 3.
With its initial leverage target achieved, Cheniere Energy upsized its share repurchase program by $4 billion for an additional three-year authorization. That sets the stage for the company to repurchase more than 10% of its current market capitalization. The company intends to repurchase shares at the same pace as debt repayment, a four-fold increase from its prior ratio.
The LNG company also announced a 20% increase in its dividend payment from its initial level set last year. Cheniere Energy also accelerated its projected dividend growth rate from the mid-single digits to around 10% annually through the construction of CCL Stage 3.
Finally, the company plans to pursue additional growth opportunities beyond CCL Stage 3. It has already filed plans to expand Corpus Christi by two more midscale LNG trains. It has a near-term goal to increase its annual LNG capacity to 60 million tons per year. It's also looking at opportunities to further expand its Sabine Pass and Corpus Christi locations, envisioning the long-term potential to grow its platform to more than 90 million tons of LNG per year.
The market certainly needs more LNG. Industry leader Shell (SHEL +1.26%) sees global LNG demand rising to more than 700 million tons per year by 2040. That's almost double the 380-million-ton market of 2020. While Europe has been a key near-term LNG growth driver, Asia remains a big long-term demand driver. Shell sees Asian countries absorbing nearly 70% of the expected LNG demand growth through 2040.
An LNG-fueled future
Strong LNG market conditions gave Cheniere Energy the fuel to accelerate its debt repayment and capital return strategy. The company is therefore giving investors a big-time dividend boost in 2022 and expects to grow its payout at a higher rate in the future. Add in continued debt reduction, share repurchases, and its growth prospects, and Cheniere Energy could produce explosive total returns in the coming years.
