Chevron Delights Shareholders with $75 Billion in Share Buybacks

Key Points

• A $75 billion share buyback program triples Chevron’s budget for share buybacks. 
• The pre-earnings announcement also includes a 6% increase to the company’s quarterly dividend. 
• The news is being criticized by the Biden administration despite the company increasing capital and exploratory (C&E) expenditures. 
• Analysts' opinions about CVX stock are likely to hinge on the company’s forecast for oil prices. 

Before the company’s earnings report on January 27, Chevron Corporation NYSE: CVX announced a $75 billion share buyback program. This triples the company’s budget for share buybacks. Not surprisingly, CVX stock is up nearly 3% in morning trading.  

The company is also increasing its quarterly dividend by 6%. That means that shareholders of record on February 16, 2023, will receive a dividend of $1.51 per share on March 10, 2023. 

Analysts and investors were not surprised by either announcement. Chevron expects to report full-year profits of $37.2 billion when it delivers its earnings report. The news is good news for shareholders of CVX stock.  

But not everyone is thrilled with the news.  

Cue the Outrage 

Chevron’s stock buyback announcement is being met by criticism from the Biden administration. The administration has been critical of oil companies for what it sees as “excessive profits” in 2022.  

The argument is that Chevron, along with other oil giants, is not doing enough to ease consumers' prices for gas. And what exactly does that “more” look like? For the administration, it means that Chevron and other oil companies, such as Exxon Mobil Corporation NYSE: XOM, would put more of their profits into drilling, acquisitions, or reducing consumer prices.  

It should be noted, however, that Chevron is likely to report that it spent $17 billion on new oil and gas projects in 2022. That’s a $2 billion increase from the prior year. And as I wrote earlier for MarketBeat, Chevron is expecting its total capital and exploratory expenditures (C&E) to average between $15 billion and $17 billion per year through 2025.  

The counterargument would be that the company’s C&E expenditures are a fraction of what shareholders receive. This at a time when stakeholder capitalism in the form of the ESG (environmental, sustainability, and governance) movement is garnering headlines.  

However, the issue becomes a little more complex when put into context with some of the recent actions of tech companies. Apple Inc. NASDAQ: AAPL, as of the quarter ended in September 2022, has announced $405 billion in buybacks and $90 billion in share repurchases in the prior 12 months.  

Apple’s market cap is more than 6x that of Chevron, which makes their buyback and share repurchase initiatives roughly equal to that of Chevron.  

What Are the Analysts Saying? 

Since the beginning of the year, five analysts have weighed in on CVX stock. Two have lowered their rating from Buy to Neutral. However, all five have increased their price target for Chevron stock, which is currently trading near the top of its 52-week range. 

Of course, most analysts won’t give a verdict on the stock until after the company reports earnings. They will undoubtedly be waiting for the company’s outlook on macroeconomic conditions that would affect the price of oil.  

Opinions on the direction of oil prices are mixed. Some economists believe that a recession will curb demand. But others are seeing the reopening of China and the continued strength in travel demand by U.S. consumers as being bullish for oil prices.  

However, oil stocks have always been cyclical stocks. If you’re going to invest in an oil stock, you’ll want to look at companies with strong cash balances that can help the company continue to provide shareholder value regardless of what is happening with oil prices. Chevron offers that value and merits consideration as a growth and income investment.