Chevron (CVX 0.75%) reported record earnings and cash flow last year, fueled by higher oil and gas prices. That's giving the oil giant more money to return to shareholders. As a result, it's boosting its dividend and unveiled a mammoth increase to its share repurchase program.
Here's a look at the oil company's new capital return plans and whether they're a reason for buying the oil stock.
Drilling down into Chevron's plans
Chevron declared its latest dividend payment. It set the quarterly rate at $1.51 per share. That's a 6.3% increase from the prior level. With this boost, 2023 will be Chevron's 36th year of dividend growth. That's the second-longest streak in the oil patch behind ExxonMobil (XOM -0.09%), which delivered its 40th straight year of dividend growth in 2022. Chevron also maintained its pace of increasing its payout by around 6% per year, which it has done for more than a decade. That continues the company's impressive dividend growth over the years:
CVX Dividend data by YCharts
The oil giant also announced an enormous increase to its share repurchase program. The company's board has authorized a $75 billion program that goes into effect in April and has no expiration date. That replaces the company's prior $25 billion authorization. Chevron had raised its share repurchase target range to $10 billion-$15 billion in the middle of last year from its initial forecast of between $5 billion and $10 billion due in part to its record profits. It now has even more capacity to return its oil-fueled profits to shareholders.
Chevron's new authorization is enough money to retire more than 20% of its outstanding shares at its current market cap. It's bigger than Exxon's current authorization of $50 billion through 2024. The rival oil giant expected to buy back stock at the upper end of its $20 billion-$25 billion range last year.
The company has the flexibility to boost its repurchase program because it has an extraordinarily strong balance sheet. Chevron's net debt ratio was under 5% at the end of the third quarter, well below its 20%-25% target range.
Well positioned for the future
Chevron plans to return more money to shareholders even as it continues investing in sustaining and expanding its business. The company unveiled a significantly higher capital spending plan for this year, raising its budget by 25% to $17 billion. That's at the top end of its long-term guidance range.
Several factors fueled that increase, including inflation and a big boost in low-carbon investments. The company will also spend money to maintain and grow its traditional oil and gas operations. These investments set the company up to capitalize on what many believe will be strong conditions in the oil market over the next few years. They also position it to benefit from the longer-term opportunities in lower carbon energy, including carbon capture and storage and green hydrogen. These investments should enable Chevron to continue generating lots of cash.
With its operations producing more cash than it needs to reinvest in its business, Chevron's returning that windfall to shareholders through a higher dividend and meaningful share repurchase program. Those growing cash returns should help further enhance shareholder value.
A great way to capitalize on crude
Chevron is returning more of its growing cash flow gusher to shareholders via another solid dividend increase and a big boost to its share repurchase authorization. It could buy back more than 20% of its outstanding shares, which still trade at a reasonable valuation given the cash it can produce at current oil prices. That big buyback adds to the long-term buy thesis, which makes the stock look like an attractive investment right now.
