Tuesday, August 28, 2018

The Market, Energy, And Political News, Page 2, T+14 -- August 28, 2018 -- More "False Precision" -- API

API: weekly crude oil change -- absolutely flat -- a build of 0.038 million bbls which works out to 38,000 bbls -- absolutely impossible precision.

I was out doing errands all day so I have to work fast to catch up. Huge "thank you" to reader(s) for sending me links.

Venezuela: oil discovered in 1914; free economy: by 1950, Venezuela had the 4th highest per capita income in the world; squandered it all. Hugo Chávez asked "so, what don't you want?" The masses said they don't want a free economy; they wanted free money; they wanted other people's money. Bernie Sanders, Occasional Cortez, and Pocahontas have said the same thing: they don't want a free economy; they want free money; free college; free medical care; free everything. And so it goes.

Biggest surprise all day: the markets held after a huge run-up yesterday. One would have thought a lot of profit-taking today. But all four major indices held, all closing higher, albeit barely in most cases.

Making America great again.
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The market:
  • all four major indices -- already at record highs -- or flirting with record highs -- closed higher today
  • AAPL hit an intra-day high
  • S&P 500 closes at record, briefly hits 2,900 for first time ever;
  • UNP: hit an all-time high yesterday; some profit-taking today
  • YUMC: up almost 4% today
  • CNBC: XLNX "breaking out"
  • MLPs: talking head "somewhere' suggested MLPs may be an area of interest in the short term
  • most stocks of interest flat to slightly down today; oil and oil service stocks definitely down
Fitzsimmons On PSX

So, the big question on the Q2 conference call was what to do with all the cash that will be generated?
As discussed, the company wants to build up its cash to a more comfortable level ($2-3 billion) after draining it to buy back $3.3 billion in shares from Berkshire Hathaway.
There also was talk of paying down a bit more debt.
But as can be seen from the $1.3 billion in net income in Q2 alone, while generating $2.4 billion in CFO during the quarter, it won't take long for PSX to increase its cash on hand and reduce debt.
So then what? Obviously, more buybacks and dividend increases. As Garland said on the conference call, "what a great problem to have." He expands on the subject by giving the 10,000-foot view summarizing PSX's cash generation and allocation numbers:
I think the portfolio is going to generate $5 billion to $6 billion of cash. We've got $1 billion of sustaining capital. We want to fund kind of another $1 billion to $2 billion of growth, so call it, $2 billion to $3 billion of capital. So that takes care of that. We've got $1.5 billion dividend today and that leaves room for another $1 billion to $2 billion of share repurchases and that kind of all balanced within our means.
Note that the company had only 464 million shares outstanding at the end of Q2. So "$1 billion to $2 billion", call it $1.5 billion of cash, amounts to an incremental ~$3/share annually. Considering the current quarterly dividend of $0.80 ($3.20 on an annual basis) equates to a roughly $1.5 billion commitment, the outlook for both dividend growth and share buybacks is obviously excellent.
I say this because if, for example, all the excess capital were allocated to growing the dividend only, the dividend could roughly double.

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