Chevron Lacks Dividend Coverage with Traditional Free Cash Flow

Image: Chevron’s shares have been choppy during the past few years.

By Brian Nelson, CFA

Chevron (CVX) recently reported second quarter results that showed mixed performance, with revenue beating the consensus forecast, but non-GAAP earnings per share coming up short. During the second quarter of 2024, total revenues advanced 4.7%, while adjusted earnings came in at $4.7 billion ($2.55 per share on a diluted basis) compared to adjusted earnings of $5.8 billion ($3.08 per share on a diluted basis) during the second quarter of last year. The earnings weakness was driven by lower margins on refined product sales, less favorable tax items in the most recent quarter, and negative foreign currency impacts.

Management had the following to say about the quarter:

This quarter, we delivered strong production, enhanced our global exploration portfolio and extended our track record of consistent shareholder returns with over $50 billion of distributions in the last two years. Despite recent operational downtime and softer margins, we remain poised to deliver significant long-term earnings and cash flow growth.

Chevron put up record production in the Permian, with worldwide production 11% higher than last year. Chevron’s cash flow from operations, excluding working capital, came in at $8.7 billion in the quarter versus $9.4 billion in the same period a year ago. Free cash flow, excluding working capital, was $4.8 billion in the quarter versus $5.7 billion in last year’s quarter. Return on capital employed was 9.9% versus 13.4% in the same quarter of last year. The company’s debt ratio (total debt/total debt plus shareholders’ equity) stood at 12.7% at the end of the quarter versus 11.5% at the end of last year.

During the second quarter, Chevron returned $6 billion in cash to shareholders, including $3 billion for each of dividends and share repurchases, and more than $50 billion during the past two years. The second quarter marked the ninth straight quarter of over $5 billion cash returned to shareholders. Chevron ended June with $4 billion in cash and cash equivalents and total debt of $23.2 billion. Through the first six months of the year, traditional free cash flow, as measured by cash flow from operations less all capex, was $5 billion, shy of the $6 billion it paid as dividends over the same time period. We prefer ExxonMobil (XOM), which has much better dividend coverage than Chevron.

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