Marathon Petroleum Is a Buy on Its Good Earnings and Yield

NEW YORK (TheStreet) -- Marathon Petroleum (MPC) impressed investors with second-quarter earnings showing a much higher-than-expected diluted earnings per share of $2.95.

This was 80 cents higher than analysts' expectations. Its shares, trading around $87, are down 5.4% for the year to date but up nearly 21% for the past 52 weeks.

Here's why the stock is a buy. During the past quarter Marathon Petroleum managed to increase its revenue despite a 6.1% drop in its refinery throughputs. Most of its gain in revenue came from favorable realized oil prices and better margins on oil prices in the Gulf Coast. The narrower margin between Brent and WTI were offset in the past quarter.

The favorable margins also reflected in a higher profit margin in the past quarter --5.1% compared to 3.7% in the second quarter last year.

Due to higher profit margins, the company was able to increase its dividend by 19% to 50 cents a share. In annual terms, this comes to 2.35% yield. But this isn't the only way Marathon Petroleum pays back its investors. It has recently approved another $2 billion share repurchase program over the next two years. Marathon Petroleum already purchased $3.1 billion worth of shares in the past year. If the company buys back another $3 billion shares in the next 12 months, its buyback yield will come to 12.2%. So the annual augmented dividend -- the sum of the dividend yield and buyback yield -- will reach 14.5% a year.

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