This Oil Stock Is Beating Apple at Its Own Game

Apple (NASDAQ: AAPL) does a masterful job of repurchasing its stock. While many technology companies use their free cash flow to buy back shares, most barely offset the dilution created by share-based compensation to executives and other employees. Apple, however, has retired a meaningful percentage of its stock over the years.

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As good as Apple is at repurchasing sharesMarathon Oil (NYSE: MRO) might be even better. After accelerating its repurchase pace last year, the oil stock has gobbled up more shares during the previous five years than the tech giant. That strategy could enable the company to put up Apple-like total returns in the coming years.

Following Apple’s capital return strategy

Apple is a cash-flow machine. The tech titan grew its operating cash flow by over $18.0 billion last year to more than $122.0 billion. It returned the lion’s share of that money to shareholders by repurchasing $89.4 billion of its stock and paying $14.8 billion in dividends. Those repurchases have reduced the company’s outstanding shares by almost 2% over the past year.

While Marathon Oil’s business doesn’t consistently generate free cash flow, the company can produce a gusher of excess cash when oil prices are higher, which was the case last year. The oil and gas producer was on pace to generate over $4.0 billion in free cash flow. It has been returning most of its windfall to shareholders through repurchases and a rapidly rising dividend.

Marathon has repurchased $3.4 billion of its shares since achieving its leverage target in October 2021, reducing its outstanding share count by a staggering 20% from its level at that time. That’s the most meaningful reduction in outstanding shares in the oil patch.

It also put it ahead of Apple in reducing its outstanding shares over the last five years:

© YCharts
AAPL Average Diluted Shares Outstanding (Quarterly)

The fuel for Apple-like total returns

Marathon hopes that by following in Apple’s footsteps, it can mirror the tech company’s success in creating value for shareholders. Apple’s steadily declining share count and the consistently rising dividend have enabled it to produce powerful total returns over the last five years. Apple has delivered a nearly 26% average annual total return, which has crushed the S&P 500‘s 8.9% average annual total return during that timeframe.

Marathon has roughly matched the S&P 500’s total return during that time frame. That’s because it hasn’t consistently returned capital to shareholders due to volatility in the oil market and some balance sheet issues. However, the company has spent the past few years repositioning its portfolio toward higher-margin oil fields and strengthening its balance sheet. That put it in a better position to generate consistent cash flow.

The oil company has also set targets to return cash to shareholders. That includes paying a competitive and sustainable base dividend it aims to increase consistently. Further, it plans to return a growing portion of its operating cash flow at higher oil prices to investors via repurchases.

The company’s new capital return strategy has paid big dividends for shareholders since it achieved its balance sheet target in October 2021. The company has increased its dividend in six of the last seven quarters (growing it by over 200% since early 2021) and has repurchased a big chunk of its outstanding stock. That has helped fuel a total return of more than 90% since the third quarter of 2021. Given the company’s priority on reducing its outstanding shares, it could continue to produce Apple-like total returns if oil prices remain elevated.

A stock-buyback leader

Apple does an excellent job of repurchasing its stock to reduce outstanding shares and enhance shareholder value meaningfully. However, after accelerating its buyback game last year, Marathon Oil is beating the tech giant at gobbling up its outstanding shares. That enabled it to produce Apple-like returns last year — a feat it could continue in the future.


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Matthew DiLallo has positions in Apple and has the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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