Chevron Just Crushed Earnings. Here's What It Means for the Dividend.
Key Points
Chevron's earnings skyrocketed in the second quarter.
Its free cash flow covered its dividend with ease.
The oil giant is now in an even stronger position to sustain and grow its dividend.
Chevron (NYSE: CVX) just reported expectation-crushing second-quarter financial results. The oil giant posted $12.1 billion in net profit, up a blistering 446% compared to the second quarter and 385% compared to the year-ago period. Its adjusted earnings of $6.05 per share obliterated the analysts' consensus estimate of $5.55.
That strong showing bodes well for Chevron's dividend. Here's what it means for the 3.6%-yielding payout.
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A cash flow gusher
While Chevron's earnings were strong, its cash flow was even more robust. The oil giant generated a monster $22.6 billion in cash flow from operations during the period. That's an astounding $20.1 billion more than last quarter and more than the cumulative $15.9 billion it produced in the first half of last year. Meanwhile, its free cash flow was a hardy $15.4 billion, more than triple its total from last year ($4.9 billion) and last quarter ($4.1 billion). Chevron benefited from record U.S. oil and gas production and refinery throughput, as well as strong oil prices (Brent averaged $104 per barrel during the quarter).
Chevron's gushing free cash flow more than adequately covered its dividend ($3.5 billion paid during the second quarter). That enabled the oil giant to repurchase over $3.1 billion of shares while also reducing debt by a record $8.4 billion. This strengthened its already fortress-like balance sheet, lowering its net leverage ratio from 1.3 times to 0.6 times and adding further support to the dividend. The oil company is now in an even stronger position to continue increasing its dividend, which it has done for 39 consecutive years.
Chevron's blowout second-quarter results further enhance the sustainability of its already durable dividend. As a result, the oil company remains a top option for investors seeking a rock-solid, high-yielding, and steadily rising dividend.
Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.