Buyback Craze?

Companies typically have two ways to return capital to shareholders: dividends and stock buybacks.

A big boost for the latter approach occurred this week when Chevron announced a massive $75 billion share repurchase authorization that takes effect on April 1.

The energy behemoth’s market capitalization is about $350 billion, so the buyback accounts for roughly 20% of the company’s market value. It will replace the board's previous authorization of $25 billion that began in 2019.

It’s testament to the company’s strong cash flow that’s been helped by crude prices that, while well off last year's peaks, are far above their lows of 2020 amid the pandemic.

Chevron isn't alone on the buyback front.

Exxon Mobil late last year announced an expansion of its $30 billion share-repurchase program, which now comes to $50 billion through 2024. 

Buybacks, however, continue to generate controversy. Congress last year approved a 1% excise tax on share repurchases as part of the Inflation Reduction Act.

Abdullah Hasan, a White House spokesman, criticized Chevron on Twitter following its buyback announcement earlier this week.

“For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it,” he wrote.

It's hard to determine whether these big energy buybacks will presage a bigger trend.

Preliminary data show that fourth-quarter S&P 500 buyouts are running nearly 4% ahead of the year ago period, according to S&P Dow Jones Indices. They are, though, still 12% below 2021's fourth quarter.