What happened
Shares of Range Resources (NYSE: RRC) had surged nearly 1% by 10:45 p.m. ET on Wednesday. Fueling the natural gas stock was its plan to start returning cash to investors in 2022.
So what
Range Resources kept a lid on capital spending in 2021, enabling it to cash in on higher natural gas prices. That positioned the company to generate significant free cash flow, allowing it to reduce net debt by $379 million during the year. It also took advantage of the improved market conditions and low interest rates to refinance near-term debt maturities.
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These moves have Range Resources entering 2022 in a much stronger financial position. Because of that and higher gas prices, the company is now able to return cash to shareholders. Range expects to generate more than $1 billion in free cash flow in 2022 at current gas pricing after funding enough new wells to roughly keep its production flat with last year's level. It plans to use $500 million of that money to start repurchasing its stock, which is enough to retire 10% of its outstanding shares at the current stock price. In addition, the company reinstated a quarterly dividend of $0.08 per share, which it expects to start paying in the second half of the year. The annualized rate implies a 1.5% dividend yield at the recent share price. Meanwhile, any excess cash generated above those shareholder returns will strengthen its balance sheet further.
Now what
Range Resources has come a long way in recent years. It has used its free cash flow to steadily chip away at its debt. That put it in the position to start returning money to shareholders this year. If gas prices cooperate, Range could generate a significant amount of cash in the next few years, which it aims to return to shareholders. That could give its stock the fuel to keep heading higher.
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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
