Chevron (CVX) is the second largest private oil and gas company in the US and the third largest by market cap in the world after ExxonMobil (XOM) and Saudi giant Aramco, notes Gavin Graham, editor of Internet Wealth Builder.

In the first quarter of 2023, ended March 31, oil and gas production was down 3% to 2.98 million barrels of oil equivalent (boe) per day. The reduced output was due to a contract expiration in Thailand and the sale of shale properties in South Texas.

Despite lower production, net earnings climbed 5% to $6.57 billion ($3.46 per share). Profits from refining were up five-fold to $1.8 billion, even though profits from oil and gas production fell 25% on lower oil prices.

Brent crude, the global benchmark, was down 16% to an average of $82 per barrel compared to a year ago. The company ended the quarter with $15.7 billion in cash.

Chevron has increased its base dividend for 36 consecutive years, with its most recent increase being 6% to $1.51 per quarter in May ($6.04 annually). That’s equivalent to a 3.86% dividend yield.

In the first quarter, dividends paid totaled $2.9 billion and share buybacks of 22 million shares totaled $3.75 billion. In total, shareholder returns were $6.6 billion, an increase of 65% from last year. In the second quarter, Chevron has announced $4.375 billion in buybacks.

Over the past two years, Chevron has generated $80 billion in cash flow and $60 billion in free cash flow, so is well able to sustain this increased rate of dividends and share buybacks for the foreseeable future.

Chevron sells at eight times trailing twelve-month earnings. The stock has been an underperformer in the energy sector. The shares are up only 25% over the last five years compared to 34% for ExxonMobil and 52% for the S&P 500, while yielding over 3.8%.

Chevron is very reasonably valued, is expected to show growth in production and cash flow. It is generating enormous quantities of excess cash, which it has committed to return to shareholders over time. The stock is a buy at current levels.

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