Oil and gas stocks moved up as the U.S. and other economies recovered after the pandemic. The war in Ukraine also spurred prices. Prices have softened on fears of slowing global economies, but we still recommend that most investors maintain exposure to the oil and gas industry as part of a balanced portfolio.
To cut risk, you should focus on producers with positive cash flow even at lower energy prices. Here’s a firm that meets that requirement—and pays solid dividends too.
The stock trades at just 8.2 times the company’s forward earnings forecast and its solid cash flow supports share buybacks plus a generous dividend.
DEVON ENERGY CORP. (Symbol DVN on New York; www.devonenergy.com) is a leading producer of oil and natural gas from wells in Wyoming, Texas, Oklahoma and New Mexico.
Devon continues to use acquisitions to expand its operations in its core areas. The company has now completed the acquisition of Grayson Mill Energy for $5 billion. That firm is an oil-and-gas producer in the Williston Basin, in western North Dakota and eastern Montana.
Oklahoma City-based Devon paid $3.25 billion in cash and $1.75 billion in stock to acquire Grayson Mill.
Devon reports that the acquisition will add immediately to its earnings and cash flow as it expands its position in the Williston Basin by more than 307,000 acres. Production from the acquired acreage is expected to hit about 100,000 barrels of oil a day in 2025. That will boost its output to an average of 765,000 barrels of oil equivalent per day from 664,000 barrels.
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Energy Stocks: Devon Energy’s strong results support a solid dividend and continued stability
Meanwhile, in the three months ended September 30, 2024, the company produced an average of 728,000 barrels of oil equivalent per day. That output was up 9.5% from 665,000 barrels a year earlier.
Devon earned $1.10 in the latest quarter, down 33.3% from $1.65. The decline was due to lower oil and gas prices, which offset the higher output.
With the December 2023 payment, the company raised its fixed quarterly dividend by 10.0%, to $0.22 from $0.20. That gives the shares a 2.3% yield.
At the same time, Devon aims to pay out as much as 50% of its excess free cash flow in the form of dividends—on top of its fixed dividend.
However, in the latest quarter, the company elected to not to declare a variable dividend. Instead, it will direct its cash flow to paying down its debt and buying back shares.
Devon continues to repurchase shares. In the latest quarter, the company bought back $295 million of its common stock. Since program inception in late 2021, Devon has repurchased $3.0 billion of common stock.
Recommendation in Power Growth Investor: Devon Energy Corp. is a buy.
