Tag Archives: CVX

Business

Chevron Rides High Oil Prices to Record $35.5 Billion Annual Profit

Leave a comment

Chevron Corp.

CVX -4.44%

banked historic profit last year as the pandemic receded and the war in Ukraine pushed oil prices to multiyear highs, with its shares climbing 53% for the year while other sectors tumbled.

The U.S. oil company in its quarterly earnings reported Friday that it collected $35.5 billion in its highest-ever annual profit in 2022, more than double the prior year and about one-third higher than its previous record in 2011. Almost $50 billion in cash streamed in from its oil-leveraged operations, another record that is underpinning plans to pay investors through a new $75 billion share-repurchase program over the next several years.

That payout, announced Wednesday, is roughly equivalent to the stock-market value of companies such as the big-box retailer

Target Corp.

, the pharmaceutical firm

Moderna Inc.

and

Airbnb Inc.

Chevron, the second-largest U.S. oil company after

Exxon Mobil Corp.

, posted revenue of $246.3 billion, up from $162.5 billion the previous year. The San Ramon, Calif., company reported a fourth-quarter profit of $6.4 billion, up from $5.1 billion in the same period the prior year.

The fourth-quarter results came short of analyst expectations, and Chevron shares closed down more than 4% Friday.

For all of its recent winnings, though, Chevron and its rival oil-and-gas producers could face a rockier year in 2023, according to investors and analysts, if an anticipated slowdown in U.S. economic growth dents demand for oil, and if China’s reopening from strict Covid-19 restrictions unfolds slowly.

U.S. oil prices have held steady this year, but are off about 36% from last year’s peak. The industry is proceeding with caution, holding capital expenditures for 2023 below prepandemic levels and saying production will grow only modestly. Chevron has said it plans to spend about $17 billion in capital expenditures this year, up more than 25% from the prior year, but $3 billion less than it planned to spend in 2020 before Covid-19 took root.

Oil companies are still outperforming other sectors such as tech and finance, which have seen widespread job cuts in recent weeks. The energy segment of the S&P 500 index has climbed 43.7% over the past year, compared with a 6.7% drop for the broader index.

Chevron Chief Executive Mike Wirth said the company is unsure of what 2023 will bring after global energy supplies were squeezed because of geopolitical events last year, particularly in Europe following Russia’s invasion of Ukraine. He said markets appeared to be stabilizing.

“We certainly have seen a very unusual and volatile year in 2022,” Mr. Wirth said, noting the European energy crisis has proven less dire than anticipated thanks to milder winter weather, growing natural gas inventories in Europe. “China’s economy has been slow throughout the year, which looks to be turning around. It’s good that markets have calmed.”

Chevron projects its output in the Permian Basin of West Texas and New Mexico to grow at a slower pace this year.



Photo:

David Goldman/Associated Press

Chevron hit a record in U.S. oil-and-gas production in 2022, increasing 4% to about 1.2 million barrels of oil equivalent a day, stemming from its increased focus on capital investments in the Western Hemisphere, particularly in the Permian Basin of West Texas and New Mexico, where it boosted output 16% last year. Worldwide, Chevron’s oil-and-gas production was down 3.2% compared with the prior year, at 2.99 million barrels of oil-equivalent a day.

Its overall return on capital employed came in at 20%, it said.

“There aren’t many sectors generating the type of free cash flow that energy is right now,” said

Jeff Wyll,

an analyst at investment firm Neuberger Berman, which has invested in Chevron. “The sector really can’t be ignored. Given the supply-demand balance, you have to have some things go wrong here to see a pullback in oil prices.”

Even so, institutional investors have shown limited interest so far in returning to the energy sector, after years of poor returns and heightened concerns about their environmental impact prompted large financiers to sell off their stakes in oil-and-gas companies or stop investing in drillers outright.

Pete Bowden,

global head of industrial, energy and infrastructure banking at

Jefferies Financial Group Inc.,

said energy companies in the S&P 500 index are throwing off 12% of the group’s free-cash flow, but only account for about 5% of the index’s weighting—an indication their stock prices are lagging behind.

Investors’ concerns around environmental, social and governance-related issues are a constraint on the share prices of energy companies, “yet the earnings power of these businesses is superior to the earnings power of companies in other sectors,” he said.

Chevron and others have faced criticism from the Biden administration and others that they are giving priority to shareholder returns over pumping oil and gas at a time when global supplies are tight and Americans are feeling pain at the pump. On Thursday, the White House assailed Chevron’s $75 billion buyout program, saying the payout was proof the company could boost production but was choosing to reward investors instead.

Pierre Breber,

Chevron’s finance chief, said the company expects oil prices to be volatile but within a range needed to sustain its dividend and investments. There are some optimistic signs, he added, including that the U.S. economy grew faster than expected in the fourth quarter, at 2.9%.

“Supply is tight. Oil-field services are near capacity, and we continue to have sanctions on Russian production,” Mr. Breber said. “You’re seeing international flights out of China are way up, and low unemployment in the U.S.”

Mr. Breber said Chevron’s output in the Permian this year is expected to grow at a slower pace, around 10%, because it has exhausted much of its inventory of wells that it had drilled but hadn’t brought into production.

Exxon, which has typically posted quarterly earnings on the same day as Chevron, will report Tuesday. Analysts expect it will also post record profit for 2022, according to FactSet.

Both companies expect to slow their output growth this year in the Permian, considered their growth engine. The two U.S. oil majors, which had been growing output faster in the U.S. than most independent shale producers, are beginning to step up their focus on shareholder returns and allow output growth to ease, said Neal Dingmann, an analyst at Truist Securities.

“This has all been driven by investor requirements,” Mr. Dingmann said.

Write to Collin Eaton at collin.eaton@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

World

Chevron Gets U.S. License to Pump Oil in Venezuela Again

Leave a comment

WASHINGTON—The U.S. said it would allow

Chevron Corp.

CVX -0.29%

to resume pumping oil from its Venezuelan oil fields after President Nicolás Maduro’s government and an opposition coalition agreed to implement an estimated $3 billion humanitarian relief program and continue dialogue in Mexico City on efforts to hold free and fair elections.

Following the Norwegian-brokered agreement signed in Mexico City, the Biden administration granted a license to Chevron that allows the California-based oil company to return to its oil fields in joint ventures with the Venezuela national oil company, Petróleos de Venezuela SA. The new license, granted by the Treasury Department, permits Chevron to pump Venezuelan oil for the first time in years.

Biden administration officials said the license prohibits PdVSA from receiving profits from Chevron’s oil sales. The officials said the U.S. is prepared to revoke or amend the license, which will be in effect for six months, at any time if Venezuela doesn’t negotiate in good faith.

Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million in the 1990s.



Photo:

Isaac Urrutia/Reuters

“If Maduro again tries to use these negotiations to buy time to further consolidate his criminal dictatorship, the United States and our international partners must snap back the full force of our sanctions,” said Sen.

Robert Menendez

(D., N.J.), the chairman of the Senate Foreign Relations Committee.

The U.S. policy shift could signal an opening for other oil companies to resume their business in Venezuela two years after the Trump administration clamped down on Chevron and other companies’ activities there as part of a maximum-pressure campaign meant to oust the government led by Mr. Maduro. The Treasury Department action didn’t say how non-U.S. oil companies might re-engage with Venezuela.

Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million barrels a day in the 1990s. Some analysts said Venezuela could hit 1 million barrels a day in the medium term, a modest increment reflecting the dilapidated state of the country’s state-led oil industry.

Some Republican lawmakers criticized the Biden administration’s decision to clear the way for Chevron to pump more oil in Venezuela. “The Biden administration should allow American energy producers to unleash DOMESTIC production instead of begging dictators for oil,” Rep. Claudia Tenney (R., N.Y.) wrote on Twitter.

Biden administration officials said the decision to issue the license wasn’t a response to oil prices, which have been a major concern for President Biden and his top advisers in recent months as they seek to tackle inflation. “This is about the regime taking the steps needed to support the restoration of democracy in Venezuela,” one of the officials said.

The Wall Street Journal reported in October that the Biden administration was preparing to scale down sanctions on Venezuela’s regime to allow Chevron to resume pumping oil there.

Jorge Rodriguez led the Venezuelan delegation to the talks in Mexico City, where an agreement was signed.



Photo:

Henry Romero/Reuters

Under the new license, profits from the sale of oil will go toward repaying hundreds of millions of dollars in debt owed to Chevron by PdVSA, administration officials said. The U.S. will require that Chevron report details of its financial operations to ensure transparency, they said.

Chevron spokesman Ray Fohr said the new license allows the company to commercialize the oil currently being produced at its joint-venture assets. He said the company will conduct its business in compliance within the current framework.

The license prohibits Chevron from paying taxes and royalties to the Venezuelan government, which surprised some experts. They had been expecting that direct revenue would encourage PdVSA to reroute oil cargoes away from obscure export channels, mostly to Chinese buyers at a steep discount, which Venezuela has relied on for years to skirt sanctions.

“If this is the case, Maduro doesn’t have significant incentives to allow that many cargoes of Chevron to go out,” said

Francisco Monaldi,

director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy. Sending oil to China, even at a heavy discount, would be better for Caracas than only paying debt to Chevron, he said.

The limited scope of the Chevron license is seen as a way to ensure that Mr. Maduro stays the course on negotiations. “Rather than fully opening the door for Venezuelan oil to flow to the U.S. market immediately, what the license proposes is a normalization path that is likely contingent on concessions from the Maduro regime on the political and human-rights front,” said

Luisa Palacios,

senior research scholar at the Columbia University Center on Global Energy Policy.

The license allows Venezuelan oil back into the U.S., historically its largest market, but only if the oil from the PdVSA-Chevron joint ventures is first sold to Chevron and doesn’t authorize exports from the ventures “to any jurisdiction other than the United States,” which appears to restrict PdVSA’s own share of the sales to the U.S. market, said Mr. Monaldi.

The license prohibits transactions involving goods and services from Iran, a U.S.-sanctioned oil producer that has helped Venezuela overcome sanctions in recent years. It blocks dealings with Venezuelan entities owned or controlled by Western-sanctioned Russia, which has played a role in Venezuela’s oil industry.

Jorge Rodriguez,

the head of Venezuela’s Congress as well as the government’s delegation to the Mexico City talks, declined to comment on the issuance of the Chevron license.

Freddy Guevara,

a member of the opposition coalition’s delegation, said the estimated $3 billion in frozen funds intended for humanitarian relief and infrastructure projects in Venezuela would be administered by the United Nations. He cautioned that it would take time to implement the program fully. “It begins now, but the time period is up to three years,” he said.

The Venezuelan state funds frozen in overseas banks by sanctions are expected to be used to alleviate the country’s health, food and electric-power crises in part by building infrastructure for electricity and water-treatment needs. “Not one dollar will go to the vaults of the regime,” Mr. Guevara said.

Chevron plans to restore lost output as it performs maintenance and other essential work, but it won’t attempt major work that would require new investments in the country’s oil fields until debts of $4.2 billion are repaid. That could take about two to three years depending on oil-market conditions, according to people familiar with the matter.

PdVSA owes Chevron and other joint-venture partners their shares of more than two years of revenue from oil sales, after the 2020 U.S. sanctions barred the Venezuelan company from paying its partners, one of the people said. The license would allow Chevron to collect its share of dividends from its joint ventures such as Petropiar, in which Chevron is a 30% partner.

Analysts said the new agreement raises expectations that will take time and work to fulfill. “Ensuring the success of talks won’t be easy, but it’s clear that offering gradual sanctions relief like this in order to incentivize agreements is the only way forward. It’s a Champagne-popping moment for the negotiators, but much more work remains to be done,” said Geoff Ramsey, Venezuela director at the Washington Office on Latin America.

—José de Córdoba and Ginette Gonzalez contributed to this article.

Write to Collin Eaton at collin.eaton@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

Business

Exxon (XOM) and Chevron (CVX) earnings Q2 2022

Leave a comment

A floorhand operates a Chevron oil drilling rig near Taft, California.

Chip Chipman | Bloomberg | Getty Images

Exxon and Chevron posted record profits during the second quarter of 2022 as high commodity prices boost operations, and as the oil giants keep their spending in check.

Chevron reported earnings of $11.62 billion during the three-month period, up from $3.08 billion during the second quarter of 2021.

Exxon, meantime, posted earnings of $17.9 billion during the second quarter of 2022, compared to $4.7 billion during the second quarter of 2021.

Shares of both companies added roughly 3% during premarket trading Friday.

Chevron’s results beat analysts’ estimates on both the top and bottom line. Chevron earned $5.82 per share excluding items on $68.76 billion in revenue during the second quarter. Analysts were expecting the company to earn $5.10 per share on $59.29 billion in revenue, according to estimates compiled by Refinitiv.

Exxon beat estimates, earning $4.14 per share excluding items versus the $3.74 per share expected, according to estimates from Refinitiv. But the company’s revenue, at $115.68 billion, missed the $132.7 billion analysts were expecting.

The earnings come as energy stocks have faltered in recent months. Recession fears — and what that means for oil and petroleum-product demand — have weighed on the group. The energy sector hit a multi-year high in June, but it’s down 18% since.

Still, energy stocks are by far the top-performing group this year, advancing 35%. The second-best sector is utilities, which have gained just 2.4%.

Energy stocks’ ascent follows a surge in oil and gas prices, which have jumped as Europe looks to move away from Russian fuel.

The companies’ record quarter is likely to draw further ire from Washington. President Joe Biden has called on companies to raise output, saying they’re keeping prices elevated at the expense of consumers. Surging energy costs have been a key contributor to decades-high inflation.

For their part, oil and gas companies say they are raising output. They also note that they’re dealing with the same macro issues — such as labor — playing out across the economy.

“We more than doubled investment compared to last year to grow both traditional and new energy business lines,” Chevron chairman and CEO Mike Wirth said in a statement.

The company’s output in the Permian Basin rose 15% year over year. For its U.S. operations, the average sales price per barrel of oil was $89 during the second quarter, up from $54 during the same period last year.

The average selling prices for natural gas surged to $6.22 per thousand cubic feet, up from $2.16 during the second quarter of 2022.

The oil giant also increased guidance for its buyback program, lifting the top end of the range to $15 billion.

“Earnings and cash flow benefited from increased production, higher realizations, and tight cost control,” Darren Woods, chairman and chief executive officer at Exxon, said in a statement.

“Strong second-quarter results reflect our focus on the fundamentals and the investments we put in motion several years ago and sustained through the depths of the pandemic,” he added.

Exxon said its oil-equivalent production stood at 3.7 million barrels per day in the second quarter, a 4% increase from the first quarter.

Read original article here

Business

Warren Buffett Says Markets Have Become a ‘Gambling Parlor’

Leave a comment

OMAHA, Neb.—As recently as February,

Warren Buffett

lamented he wasn’t finding much out there that was worth buying. 

That is no longer the case.

After a yearslong deal drought, Mr. Buffett’s

Berkshire Hathaway Inc.

BRK.B -2.55%

is opening up the spending spigot again. It forged an $11.6 billion deal to buy insurer

Alleghany Corp.

Y -0.62%

, poised to be Berkshire’s biggest acquisition in six years. It bought millions of shares of

HP Inc.

HPQ -2.53%

and

Occidental Petroleum Corp.

OXY -3.40%

And it dramatically ramped up its stake in

Chevron Corp.

CVX -3.16%

, making the energy company one of Berkshire’s top four stock investments.

The big question: Why?

“It’s a gambling parlor,” Mr. Buffett said Saturday of the markets over the past few years. He added that he blamed the financial industry for motivating risky behavior among investors. While he finds speculative bets “obscene,” the pickup in volatility across the markets has had one good effect, he said: It has allowed Berkshire to find undervalued businesses to invest in again following a period of relative quiet. 

“We depend on mispriced businesses through a mechanism where we’re not responsible for the mispricing,” Mr. Buffett said.

Mr. Buffett, 91 years old, shared his thoughts on the state of the markets, Berkshire’s insurance business and recent investments at the company’s annual shareholder meeting in downtown Omaha.

Berkshire also held votes on shareholder proposals, with investors ultimately striking down measures that asked Berkshire to make its board chairman independent and called for the company to disclose climate risk across its businesses. 

Shareholders eager to score prime seats lined up for hours before the doors opened in the arena where Mr. Buffett; right-hand-man

Charlie Munger,

98; and Vice Chairmen

Greg Abel,

59, and

Ajit Jain,

70, took the stage. As Mr. Buffett entered, a lone audience member took the opportunity to send a message. “We love you,” the person shouted. 

Mr. Buffett appeared equally enthused to see the thousands of shareholders sitting before him. 

It was a lot better being able to be with everyone in person, he said.

Up until recently, Berkshire had largely been sitting on its cash pile. Its business thrived; a recovering economy and roaring stock market helped push net earnings to a record in 2021. But it didn’t announce any major deals, something that led many analysts and investors to wonder about its next moves. Berkshire ended the year with a near record amount of cash on hand. (After Berkshire’s buying spree, the size of the company’s war chest shrank to $106.26 billion at the end of the first quarter, from $146.72 billion three months earlier.)

Mr. Buffett’s feeling that there were no appealing investment opportunities for Berkshire quickly gave way to excitement in late February, he said Saturday, when he got a copy of Alleghany Chief Executive

Joseph Brandon’s

annual report.

The report piqued his interest. He decided to follow up with Mr. Brandon, flying to New York City to talk about a potential deal over dinner. 

Warren Buffett headed in to speak to shareholders at Berkshire Hathaway’s annual meeting in Omaha, Neb., on Saturday.



Photo:

SCOTT MORGAN/REUTERS

If the chief executive hadn’t reached out, “it wouldn’t have occurred to me to write to him and say, ‘Let’s get together,’” Mr. Buffett said.

Berkshire’s decision to build up a 14% stake in Occidental also came about with a report. Mr. Buffett said he had read an analyst note on the company, whose stock is still trading below its 2011 high, and decided the casino-like market conditions made it a good time to buy the stock.

Over the course of just two weeks, Berkshire scooped up millions of shares of the company. 

“I don’t think we ever had anything quite like we have now in terms of the volumes of pure gambling activity going on daily,” Mr. Munger said. “It’s not pretty.” 

But the amount of speculation in the markets has given Berkshire a chance to spot undervalued businesses, Mr. Munger said, allowing the company to put its $106 billion cash reserve to work.

“I think we’ve made more because of the crazy gambling,” Mr. Munger said.

Another business that caught Berkshire’s eye? Chevron. Berkshire’s stake in the company was worth $25.9 billion as of March 31, up from $4.5 billion at the end of 2021, according to the company’s filing. That makes Chevron one of Berkshire’s four biggest stockholdings, alongside

Apple,

American Express Co. and Bank of America Corp.

Neither Mr. Buffett nor Mr. Munger specifically addressed Berkshire’s decision to increase its Chevron stake.

But the two men offered a defense of the oil industry. It is a good thing for the U.S. to be producing more of its own oil, Mr. Buffett said. Mr. Munger went further, saying he could hardly think of a more useful industry. 

At the meeting, Mr. Buffett also revealed that Berkshire has increased its stake in

Activision Blizzard Inc.

The company now holds a 9.5% position in Activision, a merger-arbitrage bet from which Berkshire stands to profit if

Microsoft Corp.’s

proposal to acquire the videogame maker goes through.

SHARE YOUR THOUGHTS

Do you agree with Warren Buffett’s market outlook? Why or why not? Join the conversation below.

At the end of the day, Berkshire doesn’t try to make its investments based on what it believes the stock market will do when it opens each Monday, Mr. Buffett said.

“I can’t predict what [a] stock will do…We don’t know what the economy will do,” he said.

What Berkshire focuses on is doing what it can to keep generating returns for its shareholders, Mr. Buffett said. Berkshire produced 20% compounded annualized gains between 1965 and 2020, compared with the S&P 500, which returned 10% including dividends over the same period.

“The idea of losing permanently other people’s money…that’s just a future I don’t want to have,” Mr. Buffett said.

Write to Akane Otani at akane.otani@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here

World

Kazakhstan Protests: Russia Sends Troops as Dozens Killed in Unrest

Leave a comment

MOSCOW—Russia sent paratroopers to help Kazakhstan’s leader stamp out a wave of protests as, further west, Russian President Vladimir Putin confronts the U.S. and its allies over the future of another former Soviet republic, Ukraine.

Dozens of people were killed in clashes between protesters and Kazakhstan’s security forces in the early hours of Thursday, including 18 law enforcement officers, according to Russian state media. Initially sparked by a sharp increase in fuel prices at the beginning of year, the protests quickly spiraled into a broader outpouring of frustration with the resource-rich nation’s authoritarian leaders. Protesters accuse them of squandering its wealth, including its uranium reserves, echoing the kind of uprisings that toppled one of Mr. Putin’s protégés in Ukraine in 2014 and a wave of protests against Belarus’s pro-Kremlin leader in 2020.

Read original article here

Business

How to Find the Healthiest Dividend Stocks for Your Portfolio

Leave a comment

One of the keys to successful dividend investing is separating the wheat from the chaff—finding stocks with secure payouts that can grow consistently and over the long haul.

Some of the highest-yielding shares, though tempting at first blush, can lead to trouble, notably cuts or suspensions and big capital losses.

Picking equity-income stocks got even tougher early in the pandemic last year when stalwart dividend payers like


Southwest Airlines

(ticker: LUV),


Boeing

(BA), and


Walt Disney

(DIS) suspended their payouts to preserve capital.

Though overall dividend health has improved markedly since then and looks good heading into 2022, it’s important to keep quality in mind. However, pinpointing what separates such stocks from the rest of the pack can be tricky, given the subjective nature of defining quality.

Barron’s spoke to three money managers for guidance, and to learn about some of their favorite dividend stocks.

A quality payout “isn’t only sustainable but preferably can grow over time,” says Mike Barclay, a senior portfolio manager at Columbia Threadneedle Investments. “It’s one of the reasons we don’t focus on yield,” he adds. Barclay is a manager of the $39 billion


Columbia Dividend Income
fund (LBSAX). As of Oct. 31, its top holdings included


Microsoft

(MSFT),


JPMorgan Chase

(JPM), and


Johnson & Johnson

(JNJ).

A dividend yield, Barclay says, “is just a formula” and “it really doesn’t tell you about the health of the company or the ability to pay that dividend in the future.”

Steve Goddard, founder and chief investment officer of the London Co., which manages money in separate accounts, prefers companies with high returns on capital and strong balance sheets. “High return-on-capital companies usually by definition will generate a lot more free cash flow than the average company would,” he says. And cash flow is what pays the dividend.

As of this year’s third quarter, the Richmond, Va.-based London Co.’s equity-income strategy’s top 10 holdings included


Apple

(AAPL), which recently yielded 0.5%; chip maker


Texas Instruments

(TXN), 2.4%;


Microsoft

(MSFT), 0.7%; home-improvement retailer


Lowe’s

(LOW), 1.2%; and asset manager


BlackRock

(BLK), 1.8%.

Another potential plus for quality stocks: Besides offering solid and growing dividends, many sport attractive valuations and trade at a discount to the


Russell 1000
index, says Goddard.

Company / Ticker Recent Price Dividend Yield Market Cap (bil) YTD Return Latest Dividend Increase
Coca-Cola / KO $55.00 3.1% $238.5 3.5% 2.0%
JPMorgan Chase / JPM 160.71 2.5 480.4 29.6 11.0
Texas Instruments / TXN 196.39 2.4 183.8 22.5 13.0
Comcast / CMCSA 48.94 2.0 226.5 -4.9 9.0
Microsoft / MSFT 334.97 0.7 2500.0 51.9 11.0

Data as of Dec. 8

Source: FactSet

David Katz, chief investment officer at Matrix Asset Advisors in White Plains, N.Y., cites the


S&P 500 Dividend Aristocrats Index
when asked about quality companies that pay dividends. The 65 firms in the index, all of which have paid a higher dividend for at least 25 straight years, include


Target

(TGT),


Chevron

(CVX), and


Caterpillar

(CAT).

“These are well-financed companies with long operating histories, good balance sheets, and they have consistently maintained and grown their dividends,” says Katz.

He points out that the stock market, with its tilt toward growth companies, hasn’t treated quality companies with much respect this year.

“You have a lot of really good drug companies that have a significant focus on dividends and dividend growth, have good earnings and good earnings growth, but the stocks have just been miserable,” Katz says, pointing to


Merck

(MRK) and


Amgen

(AMGN) as prime examples.

Merck, which yields 3.8%, has returned about minus 4% this year, dividends included, compared with about 26% for the


S&P 500.
Amgen, a biotech firm whose stock yields 3.6%, is also down about 4% this year.

For Barclay and his colleagues, the hunt for quality dividends starts with free cash flow, which is typically calculated as operating cash flow minus capital spending. “At the end of the day, a dividend can’t be sustained, let alone grown, over time, if the underlying cash from operations isn’t growing,” he observes.

He also pays close attention to a company’s balance sheet—the stronger, the better for dividends.

“You don’t always get paid for a strong balance sheet, except when you get into a stressed environment” like that in March 2020, when the pandemic hit the U.S. hard, says Barclay. “If you don’t have a strong balance sheet, you can’t weather that storm.”

Barclay also analyzes a company’s payout ratio, which he defines as the percentage of free cash flow that’s paid out in dividends. Many others define it as the percentage of earnings that get paid out in dividends.

“When the payout ratio is low, we know they’ve got a lot of room to run for dividend growth,” he says. “The ability [to pay it] is there. It’s our job to really press management whether or not the willingness is there to grow the dividend over time.”

One stock whose dividend Barclay likes is Microsoft, which has boosted its disbursement at an annual rate of about 10% a year. It yields only 0.7%, well below the S&P 500’s average of about 1.3%. However, Barclay says that his cost basis for the stock—the average of what he paid for the shares—is under $30, meaning his yield is effectively above 8%.

Two other dividend stocks he favors are analog chip maker Texas Instruments and banking powerhouse JPMorgan Chase, which yields 2.5%.

The market for analog chips is growing—a boon for TI—and the industry is consolidating, he says. As for JPMorgan Chase, Barclay says, it has “a very diversified business model that allows it to ride the economic cycles with some consistency.” That allows it to pay and increase its dividend.

Katz likes


Coca-Cola

(KO), which was recently yielding 3.1% but had only returned about 4% this year. He likes the beverage company’s prospects and adds that it “actually has been pretty good in terms of dividends.”

Coke’s chief financial officer, John Murphy, said during its third-quarter earnings call in late October that improving cash flow will help continue “our track record to grow our dividend.”

Write to Lawrence C. Strauss at lawrence.strauss@barrons.com

Read original article here

Business

Stock Market Today: S&P 500, Nasdaq Dip After Apple and Amazon Woes

Leave a comment

Text size

Oil companies Chevron and Exxon Mobil will be in the earnings spotlight at the end of a busy week.


David McNew/Getty Images

The stock market retreated from earlier gains Friday after


Apple

and


Amazon.com

reported disappointing quarterly results. Plus, signs of caution about the economy weighed on stocks across the board.

In afternoon trading, the


Dow Jones Industrial Average
was flat, after the index climbed 239 points Thursday to close at 35,780. The


S&P 500
and the


Nasdaq Composite
were both down 0.1% Both the Nasdaq and the S&P 500 hit record highs at the close Thursday.

Despite the weak finish, October has been a strong month for stocks. The S&P 500 has gained 5.5% for the month of October, which saw the market rebound from an early autumn drawdown. In September, concerns about supply chain constraints and rising bond yields pushed stocks lower.

Several factors enabled stocks to rebound this month. Bond yields have paused in their larger ascent. Companies have mostly beat earnings estimates. And while risks still remain—yields aren’t necessarily finished rising and supply chain constraints aren’t easing much—retail investors bought the dip.

“They [retail investors] saw the 5% [market decline] and so when they see the opportunity to buy down 5% they step in and they do that,” said John Ham, wealth advisor at New England Investments & Retirement Group.  

Big Tech earnings put the issue of shortages on center stage on Friday.


Apple

(ticker: AAPL) stock fell 2.1% after the company reported a profit of $1.24 a share, in line with estimates, on sales of $83.4 billion, below expectations for $84.9 billion. The company said supply-chain constraints due to chip shortages were worse than expected. iPhone sales were $38.9 billion, below expectations for $41.5 billion. 


Amazon

(AMZN) stock dropped 2.9% after the company reported a profit of $6.12 a share, missing estimates of $8.92 a share, on sales of $110.8 billion, below expectations for $111.6 billion. The company said labor shortages, higher shipping costs, and other rising expenses are eating into profits. Management also guided for current quarter sales of $135 billion at the midpoint of its range, below analysts’ expectations for $142 billion. 

Even if Apple and Amazon stocks were having a better day, the stock market would still look fairly weak. Just over half of S&P 500 stocks were in the red, according to FactSet. 

This comes as the yield curve—the difference in yield between long-dated and short-term debt—declined. The 10-Year Treasury yield slipped to 1.56% from hitting 1.61% earlier. The 2-Year yield held at 0.5%, where it has mostly sat since Tuesday. Higher short-term rates indicate markets anticipate a Federal Reserve rate hike sooner rather than later, which could lower long-term economic demand and inflation. Some on Wall Street have recently flagged the falling yield curve as a potential risk to monitor.

In cryptocurrency markets, Ethereum—the leading crypto asset after Bitcoin—hit an all-time high above $4,400, according to data from CoinDesk.

Here are six stocks on the move Friday:


Chevron

(CVX) gained 0.9% after the company reported a profit of $2.96 a share, beating estimates of $2.21 a share, on sales of $44.7 billion, above expectations for $40.5 billion. 


Starbucks

(SBUX) stock dropped 7.4% after the company reported a profit of $1, beating estimates of 99 cents, on sales of $8.1 billion, below expectations for $8.2 billion. 


Newell Brands

(NWL) stock rose 5.1% after the company reported a profit of 54 cents a share, beating estimates of 50 cents a share, on sales of $2.79 billion, above expectations for $2.78 billion. 


Caterpillar

(CAT) stock rose 0.3% after getting upgraded to Buy from Neutral at UBS. 


Synchrony Financial

(SYF) stock rose 0.3% after getting upgraded to Buy from Neutral at Citigroup. 


U.S. Steel

(X) soared 12% following third-quarter earnings Thursday that smashed expectations and an announcement that the company would raise its dividend.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

Read original article here

Business

Chevron (CVX) Exxon (XOM) earnings Q3 2021

Leave a comment

A sign is posted in front of a Chevron gas station on July 31, 2020 in Novato, California.

Justin Sullivan | Getty Images

Chevron said Friday that it generated the highest free cash flow on record during the third quarter as surging commodities prices and lower operational costs boosted operations.

The oil giant beat top- and bottom-line estimates for the period, earning $2.96 per share on an adjusted basis. Revenue jumped more than 80% year over year to $44.71 billion.

Wall Street analysts were expecting the company to earn $2.21 per share on sales of $40.52 billion, according to estimates from Refinitiv.

“Third quarter earnings were the highest since first quarter 2013 largely due to improved market conditions, strong operational performance and a lower cost structure,” Mike Wirth, Chevron’s chairman and CEO, said in a statement.

Chevron paid $2.6 billion in dividends during the period, repurchased $625 million worth of stock, and reduced debt by $5.6 billion.

Friday’s results mark an ongoing turnaround for Chevron and energy companies more broadly, after the pandemic and worldwide economic shutdown sapped demand for petroleum products.

During the second quarter of 2021 the oil giant earned $1.71 per share on an adjusted basis, with revenue coming in at $37.6 billion. Chevron reported a loss of $207 million during the third quarter of 2020 and posted sales of $24.45 billion.

Chevron said it continues to exercise capital discipline, and 2021 spending is down 22% year over year.

The company’s upstream operations brought in $5.135 billion during the most recent quarter as oil and gas prices rebounded from their pandemic lows. In the same period last year the unit brought in just $235 million.

Chevron’s net oil-equivalent production rose 7% year over year to 3.03 million barrels per day.

During the third quarter the company’s average sales price per barrel of crude oil and natural gas liquids for U.S. operations jumped nearly 90% year over year to $58. The average sales price for natural gas surged to $3.25 per thousand cubic feet, up from 89 cents last year. The average per barrel price for international operations was $68, up from $39 in 2020.

Shares of Chevron jumped 2% during premarket trading on Friday. For the year, the stock is up 34% through Thursday’s close, lagging the S&P 500 energy sector’s 53% gain.

Exxon will report results later on Friday. The company is expected to earn $1.56 per share on $76.34 billion in revenue, according to estimates from Refinitiv. Last quarter the company earned $1.10 per share on revenue of $67.74 billion.

During the third quarter of 2020 Exxon lost 18 cents per share on an adjusted basis while generating $46.2 billion in revenue.

Read original article here

Business

This technology could transform renewable energy. BP and Chevron just invested

Leave a comment

BP and Chevron have made a landmark expansion into geothermal energy on Tuesday, betting on a new technology that could prove to be the world’s first scalable clean energy derived from a constant source: the natural heat of the earth, 

The two major oil companies have headlined a $40 million funding round into a Canadian geothermal energy firm called Eavor. Based in Calgary, Eavor has pioneered a new form of technology that could feasibly be deployed in many places around the world.

The investment marks a key move into an area otherwise ignored by energy companies, which have largely looked to wind and solar projects in their efforts to diversify away from fossil fields.

It is the first investment into geothermal energy for BP
BP,
+1.45%
and a re-entry into the field for Chevron
CVX,
+0.58%,
which sold its geothermal assets in 2016.

Eavor has previously only accepted angel investment and venture capital. The $40 million injection will be used to further research and development to help scale the power system to be price-competitive.

Also read: Even with $1.1 trillion firepower, this fund is battling rivals to get its hands on green-energy opportunities

“We see Eavor’s potential to be complementary to our growing wind and solar portfolios,” said Felipe Arbelaez, BP’s senior vice president of zero carbon energy. “Technology such as Eavor’s has the potential to deliver geothermal power and heat and help unlock a low carbon future.”

Eavor has developed a new type of geothermal technology that, in very simple terms, creates an underground “radiator.” 

The Eavor “Loop” consists of a closed-loop network of pipes installed typically 3 kilometers to 4 kilometers below the earth’s surface, originating and terminating in the same aboveground facility. The pipes are installed using advanced drilling techniques perfected in the oil patch.

Liquid travels in the pipes from the aboveground facility through the hot ambient underground environment, before naturally circulating back to the top of the loop. The hot liquid is then converted into electricity or transferred to a district heat grid. 

A major advantage to this type of energy is that it is constant, providing a base load of electricity to a grid system without requiring challenging battery solutions of intermittent wind and solar power. 

Shots from a virtual tour of Eavor’s full-scale prototype.


Photo courtesy of Eavor.

Unlike hydroelectricity, which relies on large sources of constant water flow, it is designed to be scaled, and Eavor envisions rigs installed under solar panel fields and in space-constrained regions like Singapore.

Geothermal energy has been around for decades, enjoying a boom period in the 1970s and 1980s before largely falling out of the spotlight in the 1990s. Relying on heat below the surface of the earth, it has long been an attractive proposition for oil-and-gas companies, which have core expertise in below-ground exploration and drilling.

The problem is that conventional geothermal technology relies on finding superhot water sources underground, making them expensive, risky, and rare bets. More recent advances have roots in the shale oil boom, and use fracking techniques to actually create the underground reservoirs needed to generate energy. But this can pose a problem from an environmental and sustainability standpoint.

Eavor’s solution doesn’t require the exploratory risk of traditional geothermal energy or disrupt the earth the way that fracking-style geothermal does.

Plus: Tesla and other car makers will be impacted by Boris Johnson’s new plan for electric vehicles. Here’s how

John Redfern, Eavor’s president and chief executive, told MarketWatch that the system’s predictability, established in field trials in partnership with Royal Dutch Shell
RDSA,
+1.25%,
is repeatable and scalable, making it much like wind and solar installations.

“We’re not an exploration game like traditional oil and gas or traditional geothermal. We’re a repeatable manufacturing process, and as such we don’t need the same rate of return,” Redfern said.

“Before we even build the system, unlike an oil well or traditional geothermal, we already know what the outputs can be. Once it is up and running, it is super predictable,” Redfern said. “Therefore, you can finance these things exactly like wind and solar, with a lot of debt at very low interest rates.”

Read original article here

Business

Vale Agrees to $7 Billion Settlement for Brumadinho Dam Collapse

Leave a comment

SÃO PAULO—Brazilian miner

Vale

agreed Thursday to pay $7 billion in compensation to the state of Minas Gerais where the collapse of its dam two years ago killed 270 people, polluted rivers and obliterated the surrounding landscape.

The settlement, the biggest in Brazilian legal history, is a watershed moment for a country long hampered by impunity and where miners and big businesses have often exerted more power than the state, especially in rural areas.

Public prosecutors said the $7 billion agreement is meant to compensate the state for the socioeconomic and environmental damage caused by the disaster. But it doesn’t affect the many pending homicide and other criminal charges in the case against the world’s largest iron-ore miner and former executives, including Vale’s previous chief executive,

Fabio Schvartsman.

The attorney general of Minas Gerais state,

Jarbas Soares Júnior,

said he hoped the size of Thursday’s settlement would send a message to the rest of the world: “We will not accept the exploitation of our resources without a minimum level of commitment to social and environmental responsibility.”

Vale accepted the decision and said it would book an additional expense of about $3.7 billion in its 2020 results.

“Vale is committed to fully repair and compensate the damage caused by the tragedy in Brumadinho and to increasingly contribute to the improvement and development of the communities in which we operate,” CEO

Eduardo Bartolomeo

said. “We know that we have work to do and we remain firm in that purpose.”

Mourners visited a memorial for victims of the Brumadinho dam collapse in 2019. Suicides and attempted suicides in the region soared following the disaster, particularly among women.



Photo:

douglas magno/Agence France-Presse/Getty Images

Vale’s investors welcomed the settlement as a way to avoid a drawn-out court battle, as did public prosecutors who cited other lawsuits over environmental problems in the state that haven’t been resolved after nearly 20 years.

The miner’s shares, which have increased about 60% in value since the dam collapsed, initially rose after news of the settlement, signaling investors’ hopes that the company can finally move past the disaster.

“Vale was able to get a discount of about one-third based on what the state government was asking, so they were skillful in this negotiation,” said

Ilan Arbetman,

an equities analyst at the Brazilian brokerage Ativa Investimentos. The miner has already provisioned a big part of the agreed value and is benefiting from high iron-ore prices, he said.

When Vale’s dam burst near the town of Brumadinho in January 2019, it unleashed a tsunami of mining waste speeding down the valley at up to 50 miles an hour, wiping out the on-site canteen where many workers were at lunch and destroying nearby homes and a guesthouse.

Two years later, the bodies of 11 victims still haven’t been found.

The collapse, one of the deadliest anywhere in the world, came only three years after a dam at another iron-ore mine jointly owned by Vale ruptured 100 miles away in the town of Mariana, killing 19 people and polluting more than 400 miles of river. The company vowed at the time that such a disaster would never happen again.

The settlement funds will be spent on environmental projects and shoring up local water supplies as well as improving transport networks and health services. The agreement also includes Vale’s initial costs in the aftermath of the disaster, when the company paid for temporary housing, mental-health professionals and emergency monthly stipends for residents.

Suicides and attempted suicides in Brumadinho soared in the year following the collapse, particularly among women. Some lost their husbands, sons and fathers at the mine, one of the region’s biggest employers, and were forced to wait months for rescue workers to recover the remains of their loved ones from the hardened mud.

Following the Mariana collapse in 2015, Vale and its partner at that dam,

BHP Group Ltd.

, created the Renova Foundation to manage compensation, which said it had paid out about $2.1 billion as of December last year. Prosecutors have said they believe that the second dam collapse in 2019 might not have occurred if Vale and BHP had faced tougher consequences for the first one.

In January last year, Brazilian prosecutors charged former Vale CEO Mr. Schvartsman and 10 others from the mining company with homicide. They also filed homicide charges against five people at Germany’s TÜV SÜD, the auditing company that certified the mine-waste dam as safe months before it ruptured.

All 16 people, including several high-level executives and directors at Vale, were also charged with environmental crimes, as were both companies as entities. Those charges are still being disputed in Brazil’s court system.

Prosecutors said last year it was clear that the dam had presented a critical structural risk since at least 2017 and that Vale had been fully aware of its safety problems. The German inspector certified the dam as safe despite also knowing about its structural problems, eyeing a chance to win multiple contracts with Vale and expand its Brazilian operations, they said.

As part of a year-long investigation into the disaster, The Wall Street Journal first reported in February 2019 the conflict of interest between Vale and TÜV SÜD, which worked as both an internal consultant and an independent safety evaluator for the miner.

A spokeswoman for Vale said Thursday that the miner wasn’t aware of an imminent risk at the dam. TÜV SÜD said it reiterated its commitment to “see the facts of the dam’s collapse clarified,” adding that it was cooperating with authorities. Mr. Schvartsman and the individuals facing criminal charges have denied wrongdoing in the case.

In recent years, Brazil’s public prosecutors have battled big companies with little success. After an oil spill off the coast of Rio de Janeiro in 2011, prosecutors filed lawsuits against

Chevron Corp.

for more than $7 billion. Two years later, they settled with the U.S. oil giant for $55 million.

Write to Samantha Pearson at samantha.pearson@wsj.com and Jeffrey T. Lewis at jeffrey.lewis@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Read original article here