Chevron Hikes Dividend Ahead of Earnings

The gains seen earlier in the year from higher crude prices could diminish, but the company hiked its dividend and announced a $75bn buyback ahead of its earnings. A smart move?

Analysts Bet Against Upstream Division

The last two quarters saw Chevron beating even the highest earnings forecasts. But also earnings have turned around, with the bottom line last quarter falling compared to the prior. The consensus among analysts is that earnings will drop again, this time to $4.33, as revenues fall to $52.7B, below the $66.6B reported in the third quarter.

There is a relatively wide range in revenue estimates because Chevron gets most of its upstream division. That is the exploration and production side, impacted by a bout of cold weather in December, causing refinery shut-ins. Although production continued and went into storage, as evidenced by the rise in DOE crude inventories from the period, it could still have impacted the company's earnings. This was after the Richmond refinery had to be shut down for several days.

Largely Hang on Crude and Gas Prices

Just a few days before earnings are to be released, the company announced a 6.3% hike in the dividend and announced a $75B share buyback. That amounts to a whopping 21.5% of the company's market cap. The buyback almost immediately received criticism from the White House, which has repeatedly accused oil companies of excess profits. Recently, the Biden Administration announced a license to produce natural gas in Trinidad & Tobago. This is part of the deal that would allow export from Venezuela, with the funds being used to pay down debt to Chevron. 

Chevron's downstream division has seen an improved situation thanks to being the largest producer of LNG in the US. Europe has been buying up as much LNG as possible and expanding import facilities as the shared economy looks to replace Russian gas. Chevron might benefit from both higher crude and gas prices.

Price Not at Measured-Move Height Yet

The stock price of Chevron has been on an upward trend since the 2020 record low. Both a flag and a pennant correction patterns have boosted the trend, but the recent leg off $140 is due to complete the measured move just above the $200 resistance. The stock could rise with the $167-$190 unbroken range if the upper bound gives in. Otherwise, $140 will return to the spotlight, with $132 as a major floor for the longer-term price of Chevron.

Source: Spreadex

Key Takeaways

Chevron's earnings have been volatile over the past few quarters, and analysts are expecting another drop to $4.33 on lower oil production due to refinery shutdowns. However, the company's downstream division has seen an improved situation thanks to being the largest producer of LNG in the US. With a 6.3% hike in the dividend and a $75B share buyback, which the White House criticised, Chevron might benefit from higher oil and gas prices.