In this key area of shareholder return, the oil business has surpassed the tech behemoth.
Apple (AAPL 1.92%) excels at repurchasing its shares. The dilution caused by share-based remuneration for executives and other staff is scarcely mitigated by most technology companies’ use of free cash flow for share buybacks. However, Apple has retired a sizable portion of its stock over time.
Marathon Oil (MRO 1.79%) could be even more effective at repurchasing shares than Apple. The oil stock has devoured more shares over the preceding five years than the tech behemoth, despite speeding up its repurchase rate last year. With this tactic, the business might produce total returns similar to Apple’s in the upcoming years.
Emulating Apple’s approach to capital returns
Apple has a strong cash flow. The internet giant increased its operating cash flow last year to more than $122.0 billion by over $18.0 billion. By purchasing $89.4 billion worth of its shares and dispersing $14.8 billion in dividends, it sent the lion’s share of that money back to its investors. Over the previous year, the repurchases have almost 2% less shares outstanding for the corporation.
Marathon Oil’s operations don’t always result in free cash flow, but when oil prices are higher, as last year, the company may earn a torrent of surplus cash. The oil and gas company was on track to generate more than $4.0 billion in free cash flow. It has given most of its windfall back to shareholders through share repurchases and a steadily rising dividend.
Since reaching its leverage target in October 2021, Marathon has repurchased $3.4 billion worth of shares, drastically lowering the number of outstanding shares from what it was then. The most significant decrease in outstanding shares has occurred in the oil industry.
In terms of lowering its outstanding shares over the previous five years, it also put it ahead of Apple:
The catalyst for overall returns akin to Apple
Marathon aspires to emulate Apple’s success in generating wealth for shareholders by following in the footsteps of the computer giant. Apple has generated impressive total returns over the past five years thanks to its gradually dropping share count and regularly rising dividend. Apple outperformed the S&P 500 throughout that period with a roughly 26% average yearly total return, outpacing it by 8.9% on average.
During that time, Marathon’s total return has roughly mirrored that of the S&P 500. That’s because it hasn’t regularly returned capital to shareholders due to oil market volatility and a few balance sheet problems. But during the last five years, the corporation has worked to strengthen its balance sheet and shift its portfolio toward oil areas with higher margins. It was then in a better position to produce steady cash flow.
The oil business has also established goals for shareholder payouts. This involves paying a competitive and long-term base dividend that will steadily increase. Additionally, it intends to use share repurchases to give investors an increasing share of its operating cash flow at higher oil prices.
Since the company’s new capital return strategy was implemented in October 2021, large dividends have been paid to shareholders. A significant portion of the company’s existing stock has been repurchased. It has boosted its dividend six out of the last seven quarters, increasing it by almost 200% since early 2021. Because of this, since the third quarter of 2021, there has been a total return of more than 90%. If oil prices stay high, the corporation, which places a high premium on lowering its outstanding shares, could continue to generate total returns similar to Apple’s.
Leader in stock repurchases
Apple performs a great job of repurchasing its shares to lower the number of outstanding shares and dramatically increase shareholder value. Marathon Oil is outpacing the tech giant in acquiring its outstanding shares after stepping up its buyback program last year. Due to this, it was able to generate returns similar to those of Apple last year, a feat that may continue in the future.
