Chevron's (CVX 1.31%) strategy of focusing on investing in its highest-return assets has paid big dividends over the years. The company is generating a growing stream of cash flow, which is giving it lots of money to return to shareholders. Over the last two years, it has sent its investors a whopping $50 billion via dividends and share repurchases.
The oil company expects to produce even more cash in the future, which should enable it to continue returning boatloads of money to shareholders.
NYSE: CVX
Key Data Points
Solid results
Chevron recently reported its second-quarter results. "This quarter, we delivered strong production, enhanced our global exploration portfolio and extended our track record of consistent shareholder returns with over $50 billion of distributions in the last two years," stated CEO Mike Wirth in the earnings press release. He noted that despite some headwinds from operational downtime and softer margins, the company remains "poised to deliver significant long-term earnings and cash flow growth."
The oil company's global production surged 11% in the second quarter to nearly 3.3 million barrels of oil equivalent per day. Chevron benefited from its acquisition of PDC Energy last year and strong performance in its Permian and DJ Basin position in the U.S., which helped offset downtime in Australia.
That strong production rate and higher realized prices for its liquids output enabled Chevron to post solid quarterly financial results despite some headwinds. The company posted $4.7 billion of adjusted earnings, down from $5.8 billion in the year-ago period due to weaker margins in its refining business. Meanwhile, its cash flow from operations was even higher at $6.3 billion, flat compared to the year-ago period.
Chevron invested $4 billion into capital projects during the period, leaving it with $2.3 billion of free cash flow. The company used that cash and its strong balance sheet to return $6 billion to shareholders in the period, split evenly between dividend payments and share repurchases. That marked the ninth straight quarter that Chevron returned over $5 billion in cash to its investors. The company ended the period with a strong balance sheet, even with those cash returns. Its net debt ratio was 10.7%, well below its 20%-25% targeted leverage ratio range.
More cash is coming
Chevron expects to continue generating a lot of cash. The oil company is investing heavily in high-return capital projects, which should grow its production, margins, and free cash flow. It expects its global oil and gas production to rise by a more than 3% compound annual rate through 2027. Its focus on growing its highest-margin assets drives its expectations that its free cash flow will grow at a more than 10% compound annual rate during that period compared to its 2022 level. That outlook assumes oil averages around $60 a barrel, which is well below the current price point of around $80.
The forecast drives Chevron's belief that it can repurchase $10 billion to $20 billion of its shares each year. It can achieve the low end at an average oil price of around $50, while the high end is likely at $70 a barrel. Chevron also plans to continue increasing its dividend. It boosted its payout by 8% earlier this year and has grown it at more than double the rate of its closest peer over the last five years.
There's ample upside to Chevron's plan from higher oil prices and its ability to close its needle-moving acquisition of Hess. Chevron estimates that adding Hess would double its free cash flow by 2027, assuming $70 oil. The deal would also extend its production growth outlook into the 2030s. However, the company is in arbitration with Hess' partners regarding their lucrative joint venture offshore Guyana. That has delayed the deal's closing, which now might not occur until the middle of next year, if at all.
A well-oiled cash-flow machine
Chevron's focus on growing its best assets has enabled the company to produce lots of cash. It has now returned $50 billion to its shareholders over the last two years. More money will flow their way in the future as it continues making high-return investments. Those strong cash returns could enable Chevron to produce high-octane total returns for its investors in the coming years, especially if oil prices cooperate and it closes its needle-moving Hess acquisition.
