Chevron is returning much of its oil-fueled windfall to shareholders. When to buy this oil stock?

chevron (CVX 3.19%) reported record earnings and cash flow last year, boosted by rising oil and gas prices. That would give oil giants more money to return to shareholders. As a result, the company increased its dividend and announced a significant increase in its share buyback program.

Let’s take a look at the oil companies’ new capital return plans and whether that’s a reason to buy oil. oil stock.

Digging into Chevron’s plans

Chevron has announced its latest Dividend paymentThe quarterly rate is set at $1.51 per share. This is a 6.3% increase from the previous level. With this boost, 2023 will be Chevron’s 36th annual dividend increase. This is his second longest streak on the oil patch. exxon mobil (XOM 2.06%), to achieve 40 consecutive years of dividend increases in 2022. Chevron also maintained the pace of increasing its dividend by about 6% a year, which it has done for more than a decade. This keeps the company’s impressive dividend growth going for years.

CVX Dividend Data by YCharts

The oil giant also announced a significant increase in its share buyback program. The company’s board has approved his $75 billion program with no expiration date, effective in April. This replaces his previous $25 billion authorization for the company. Chevron raised its share repurchase target range midway through last year, from his initial forecast of $5 billion to $10 billion to $10 billion to his $15 billion, partly because of record profits. I was. We now have an even greater ability to return our oil-fueled profits to our shareholders.

Chevron’s new authorization is sufficient to sell over 20% of its current outstanding shares. market capitalizationThis is more than the $50 billion currently approved by Exxon by 2024. Competing oil giants expected to buy back shares at the high end of the range from $20 billion to $25 billion last year.

The company has a very strong balance sheet, which gives it the flexibility to strengthen its share repurchase program. Chevron’s net debt ratio was below 5% at the end of the third quarter, well below its target range of 20% to 25%.

be well positioned for the future

Chevron plans to return more money to shareholders while continuing to invest in sustaining and expanding its business. The company significantly raise capital investment plans for this year, increase the budget by 25% to $17 billion. This is the upper end of the long-term guidance range.

Several factors have spurred that increase, including inflation and a significant increase in low-carbon investment. The company also plans to spend the money on maintaining and expanding its traditional oil and gas business.What have these investments enabled the company to take advantage of? Many believe oil markets will do well in the coming yearsThey are also positioning themselves to benefit from long-term opportunities for low-carbon energy, including carbon capture and storage and going green. hydrogenThese investments should allow Chevron to continue to generate a lot of cash.

Because the business generates more cash than it needs to reinvest in the business, Chevron is returning that windfall to its shareholders through higher dividends and meaningful share buyback programs. These cash return increases should help further enhance shareholder value.

A great way to take advantage of crude oil

Chevron is returning more of its growing cash flow spout to shareholders through further solid dividend increases and a significant boost in share buyback approvals. It may buy back more than 20% of his outstanding shares, but is still trading at a reasonable valuation given the cash it can generate at current oil prices. That big buyback adds to the long-term buy thesis and makes the current stock look like an attractive investment.