Investors buy shares of Devon Energy Corporation (NYSE: DVN); here’s why
The oil and natural gas giant Devon Energy Corporation (NYSE: DVN) the stock has outperformed phenomenally over the past 12 months. This morning, the stock is up 7%. Despite the volatility in underlying commodity prices, Devon Energy shares continue to earn investor confidence, based on strong dividend growth and redemptions supported by strong free cash flow, as well as synergistic acquisitions that add to its growth story.
Robust dividend growth and redemptions supported by strong free cash flow
The company has a strong dividend payout. In one year, the dividend has increased significantly, recording growth of more than 200%. The company pays a fixed quarterly dividend of $0.18 per share and supplements it with a variable dividend of up to 50% of excess free cash flow. The total dividend of $1.55 per share implies an annual dividend yield of 4.14%.
Additionally, the company plans to return 6% of value to shareholders in the form of buyouts. To date, the company has already repurchased shares worth $1.2 billion of the $2.0 billion repurchase authorization.
Dividend growth and redemptions are supported by strong free cash flow. The company’s FY2022 free cash flow yield of 16% is well ahead of its peers as well as benchmarks. This is 4x the average free cash flow return of stocks traded on the NASDAQ (NDX).
Along with its second-quarter results, the company also raised its production outlook for fiscal 2022 as well as future free cash flow generation.
The company has an impressive track record of accretive acquisitions. Last week, the company completed its $1.8 billion follow-on acquisition of Validus Energy, an operator of Eagle Ford.
The acquisition adds 42,000 net acres adjacent to the existing Devon facility as well as 350 repeatable drill locations.
Validus Energy has current production of 35,000 barrels of oil equivalent (Boe) per day with a planned ramp-up to 40,000 Boe per day next year. The newly added inventory will strengthen the company’s production capacity and increase its margins as well as its free cash flow generation in the years to come.
What is the target price of DVN stock?
On TipRanks, Devon Energy stock has an average price target of $82.50, implying upside potential of 28.8% from current levels. The highest price target of $115 has a potential return of 79.7% while the lowest price target of $61 implies a potential downside of 4.7%.
Obviously, the DVN stock has a top-notch smart score of a “Perfect 10” on TipRanks. Additionally, it has a very positive signal from hedge fund managers, who added 664,500 shares in the last quarter.
What’s most impressive about DVN stock is that it has a strong balance sheet with a strong cash position supporting its acquisitions and exceptional dividend growth and redemptions.
No wonder, TipRanks’ Stock Investors tool shows that investors currently have a very positive stance on Devon Energy, with 4.6% of investors on TipRanks increasing their exposure to DVN stocks over the past 30 days.
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