Despite all the talk of constriction in the credit markets, Wall Street's buyback binge continues. But whereas retailers did much of the purchasing earlier in the cycle, it's all about the commodities now. Oil refiner Frontier
That would be oil major Chevron
Can it pay?
Easily. Chevron's war chest is filled to overflowing with $12.1 billion in cash and equivalents. Against that amount, debt of $8.2 billion looks positively puny. Most importantly, Chevron generated $10.1 billion in free cash flow over the past 12 months. The firm has a plethora of options for how to deploy its cash during the buyback, but the long and the short of it is that Chevron can buy back all it wants, whenever it wants.
I'm honestly not sure it should. I mean, for one thing, Chevron's stock is trading not just at 52-week highs, but at its highest price ever. If something should happen to send the price of oil tumbling -- something like, oh, I don't know, a recession -- buying back shares at the top could look incredibly dumb in retrospect.
But on the other hand, Chevron's trading at these highs for a reason: It's raining cash in the oil patch, and I just don't see much better use for all the cash Chevron is throwing off these days. The firm already offers a better dividend payout than what Exxon Mobil
So maybe, just maybe, paying for richly priced shares really is the best way to return value to shareholders. It sure hasn't hurt over the past three years.
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