The worst takeaway from Halliburton’s (NYSE: HAL) Q3 report was weaker free cash flow alongside higher capital expenditures (CapEx) and its impact on free cash flow (FCF). While FCF is down sequentially and year over year (YOY), this self-inflicted wound comes as Halliburton spends on repositioning, equipment movement, and staging for success. The best takeaway from Halliburton’s Q3 release is its numerous contract wins and project advancements that position it for a multiyear upcycle. Investment in the Mediterranean, Latin America, Asia, and the Middle East includes multiyear development agreements that will drive business across both of Halliburton’s core segments.
Between then and now, management expects margins to recover, and capital returns will flow. Management shows its confidence through the dividend and share buybacks, which FCF did not cover. The takeaway is that Halliburton will likely maintain dividends and buybacks as margins recover and increase capital returns over the coming years. As it stands, the share count fell more than 2% YOY, adding to shareholder returns beyond the dividend. The dividend yields a little more than 2%, has a payout ratio below 30% of adjusted earnings, and should grow over time. The company doesn’t make annual increases but tends to lift payments as cash flow allows.
