Investing Club: Here are 4 things Chevron's CEO told Cramer that show why the stock is worth owning

Published Tue, Mar 1 20223:15 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

It's a good time to own Chevron (CVX). The oil giant is investing more in U.S. production capacity to meet rising demand. Shareholder returns are improving through dividend hikes and buybacks. And on top of all that, Chevron is benefiting from the one-two punch of higher oil prices and more efficient operations. Chevron CEO Mike Wirth on Tuesday explained why there's plenty more growth ahead — on the very same day its stock hit an all-time high. Here are four main takeaways: 1. More cash is going back to shareholders Ahead of its investor day Tuesday, Chevron unveiled a boost to its stock buyback guidance. The company now expects to repurchase between $5 billion and $10 billion worth of shares each year, up from $3 billion to $5 billion. In late January, Chevron also announced it was hiking its quarterly dividend by 8 cents to $1.42 per share, putting the company on pace for 35 straight years of dividend payout increases. In an interview on CNBC's "Squawk on the Street," Wirth put some more context around Chevron's cash situation and its implications for investors. "We expect to distribute 50% more cash to shareholders this year than we did last year. We're simply a better company than we were just a few years ago. ... We've been around for 142 years. Last year was our highest free cash flow by 25%. This year could be even better. " 2. Increased efficiency key to recent success Chevron, of course, is benefiting from the higher price of oil and natural gas. For example: In the fourth quarter for U.S. upstream operations, Chevron's average sales price per barrel of crude oil and natural gas liquids was $63, compared with $33 in the fourth quarter of 2020. For international upstream, those same figures were $74 per barrel and and $40, respectively. Upstream is the exploration and production phase of the oil supply chain. Chevron also operates downstream with its refineries. However, Wirth said Chevron also is operating considerably more efficiently than it was before the coronavirus pandemic. According to the CEO, those internal improvements are helping the company in important ways that go beyond elevated oil prices. "As you go back two years ago, oil was negative at one point in time. Our people continued to find ways to develop assets and run our business with more efficiency. ...We said 20% more capital efficient. We also committed to reduce our unit operating cost by 10% over the next five years, so we're simply more capital and cost efficient through a lot of little things, which generates more cash, again, to be returned to shareholders." CNBC's David Faber, who co-hosts "Squawk on the Street" alongside our Jim Cramer, pushed Wirth to explain what, exactly, those little things are. The CEO brought the details. "The rate of drilling productivity. In the Permian, we can drill more feet per rig today than we ever have in the past. Our ability to complete wells in the Permian; we can get more completions done in the same unit of time than we ever have in the past. 3. CapEx is going up Chevron's capital budget is going up this year. Last year, it was under $12 billion, Wirth said. It's expected to be over $15 billion this year. Spending in oil-rich Permian Basin, which is located in western Texas and parts of southeastern New Mexico, also is going up, according to the CEO. "We're increasing our activity in the Permian Basin. We announced guidance today that increases are expected [for] production out of the Permian by 2025 to more than 1 million barrels a day, so we are investing in this country. We are investing to increase production, and we are doing so at a greater rate than we have over the last few years." 4. Impact of oil prices Oil had already surged over the past year, and Russia's invasion of Ukraine is pushing prices even higher . Brent crude, the international benchmark, saw its May contract trade over $107 per barrel Tuesday. Chevron's cash framework for the coming years is balanced at Brent trading at $50 per barrel, according to its investor day presentation. But, Wirth explained, the company and its shareholders will benefit if that projection ends up being too conservative. "We've got upside leverage to oil price. We don't, in our base planning scenario, assume high prices. We actually plan for low prices. ... For five years at $75, we could have the capability to buy back a quarter of the company over just five years." (Jim Cramer's Charitable Trust is long CVX . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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Michael Wirth, CEO of Chevron.

Adam Jeffery | CNBC

It's a good time to own Chevron (CVX).