While the world obsesses over oil prices and renewable energy transitions, Equinor (STOHF) is quietly building a cash flow fortress that could make it one of the most resilient energy giants of the coming decade. Hidden within their latest financial data is a trend that, if it continues, could transform the company's future: a steadily shrinking share count.

At first glance, Equinor's recent financials appear to follow the familiar script of an oil major navigating choppy waters. Revenue in the latest quarter (ending March 31, 2024) dipped slightly year-over-year, quarterly earnings growth contracted, and the world is still clamoring for them to accelerate their green energy initiatives. Yet, a deeper dive reveals a counter-narrative, a story of meticulous financial management and a strategic focus on maximizing shareholder value.

The most compelling evidence of this strategy lies in Equinor's steadily declining outstanding shares. In the first quarter of 2024, the company reported 2.942 billion shares outstanding. This represents a significant decrease from 3.124 billion shares just one year earlier, a reduction of almost 6%. While share buybacks aren't unusual for mature companies, Equinor's commitment to shrinking its share count stands out in its consistency and magnitude.

This trend extends beyond the last year. Looking back over the past decade and a half, we see a dramatic shift. In 2008, the company had a staggering 8.665 billion shares outstanding. Fast forward to today, and that number has been slashed by more than two-thirds. This sustained reduction signals a deliberate, long-term approach to enhancing shareholder value.

Why is a Shrinking Share Count Important?

But why is this shrinking share count so significant? The answer lies in its impact on two crucial financial metrics: earnings per share (EPS) and dividend yield. As the denominator in the EPS calculation shrinks, earnings per share naturally rise, even if overall earnings remain flat. This can paint a rosier picture for investors and potentially boost the company's stock price.

Furthermore, a smaller share count amplifies the impact of dividends. With fewer shares to distribute dividends amongst, the yield per share increases, making the stock more attractive to income-seeking investors. In Equinor's case, their forward annual dividend yield already sits at a respectable 4.86%, and this figure is poised to climb as the share count continues its downward trajectory.

Here's where the hypothesis gets really interesting. If Equinor maintains its current rate of share count reduction, we could see a further 5-6% decrease in outstanding shares by the end of 2024. This could translate into a corresponding increase in EPS and dividend yield, making the company even more attractive to investors.

Risks and Opportunities

This "secret weapon" is not without risks. Aggressively buying back shares can deplete cash reserves, limiting Equinor's ability to invest in new projects, particularly in the renewable energy space where they face increasing pressure to deliver. However, their strong cash flow from operating activities (over $8 billion in the latest quarter) suggests that they are currently managing this balancing act effectively.

Perhaps even more intriguing, Equinor's share buyback program might be a subtle signal of confidence in their core oil and gas business. By returning cash to shareholders through buybacks, the company is essentially betting that these investments will outperform alternative uses of capital, including large-scale investments in renewables. This confidence, combined with their shrinking share count, suggests a bullish outlook for Equinor's future, even amidst the uncertainties of the global energy landscape.

"Fun Fact: Did you know that Equinor is a pioneer in carbon capture and storage (CCS) technology? They operate the world's first commercial-scale CCS project, Sleipner, which has been successfully capturing and storing CO2 emissions from natural gas production since 1996! This innovative approach underscores the company's commitment to mitigating climate change while remaining a major player in the fossil fuel industry."