Chevron Is Not Only Greasing the Wheels, It’s Turbocharging Them

You already know that Chevron (CVX) is a component of my benchmark HOAX portfolio. I have owned it in my personal account forever, and for reasons clear to anyone who reads my columns, you would have to pry CVX from my cold, dead hands. But, even in my wildest dreams, I would have never imagined the atom bomb CVX’s board dropped last night on anyone foolish enough to short CVX or even to complain about its valuation.

First, the divvy. In the quiet period before earnings, one has to do a little back of the envelope math. CVX’s announcement was exactly in-line with my expectations. The prospective rate of $1.51 per quarter (up from $1.42 prior) put CVX’s yield at 3.4% on an annualized basis, as of Wednesday night’s close.

But Thursday’s close will be around 5% higher than Wednesday night’s close, and just a few ticks short of CVX’s all-time high reached last November, because of the other part of Chevron’s press release: Chevron’s board authorized a $75 billion buyback. Seventy-five billion dollars! My jaw hit the floor when I first heard it. Let’s analyze this. 

CVX’s last share repurchase authorization was for $25 billion beginning in January 2019. According to Wednesday night’s press release, that tranche will be completed by the end of the first quarter of 2023. So, it took Chevron 3 years and three months to buy back $25 billion. The new authorization, as is customary, comes with no fixed expiration date. So, how long will it take them to repurchase $75 billion in CVX shares?

Hmmm … how to phrase this: I don’t care. I really don’t. In the first nine months of 2022, Chevron paid $8.3 billion in common dividends and repurchased $7.5 billion of CVX stock.

So, they were returning cash to shareholders at about a $5.2 billion/quarter rate. With a 6% bump in the divvy and the now-supercharged share repo program, I would expect that rate to increase to between $6 billion-$7 billion per quarter.

But CVX’s market cap today, according to Google Finance, is only $362 billion. So CVX is rewarding shareholders with an annualized “shareholder return yield” of about 8%.

That is an enormous tailwind for shareholders, and why I would never sell a share of my or my clients’ CVX stockholdings.

Now compare that to Tesla (TSLA) , which is up 9% today after Elon Musk’s borderline-unhinged claims of a 2 million-unit year in 2023. Tesla isn’t going to sell 2 million units this year any more than it was going to sell a million units in 2021 (final tally was 930,000) or 1.7 million units in 2022 (that was the highest estimate I saw in the first quarter of the year, from Jefferies). The final 2022 tally came in at 1.33 million.

But, the key difference between TSLA and CVX is that annualized shareholder return figure that I quoted above.

2023 estimated annualized total shareholder return:

CVX: 8%

TSLA: 0.00%

So, it all comes down to perspective. Even after Thursday’s jump, TSLA shares have fallen almost exactly 50% in the past year. Without paying a dividend or repurchasing a single share. In contrast CVX shares have risen more than 40%, plus the dividend of $3.60/share (2022’s actual, which seems absolutely puny compared to the prospective rate of $6.04 per share) plus the share repurchase.

So who is winning? We are. Why? Because cash flow never lies … and we only own stocks that return that cash flow to us. Simple. And lucrative. No reason to change now. Rest assured that I will not.