Devon Energy Corp (NYSE:DVN)
Devon Energy Corp (NYSE: DVN) is an Oklahoma-based energy company that is primarily engaged in hydrocarbon exploration within the US. The company operates a range of segments including pipelines, extraction, and refinery. Recently, excellent earnings caused an 80% uptick in mentions of the energy company, leading investors to ask ‘is Devon Energy a good investment? The company’s share price is currently hovering around the $68 mark, up a massive 44% YTD.
Is Devon Energy Corp a Good Investment - Positives
There’s a ton of hype surrounding Devon Energy at the moment and for good reason! Here are a few reasons why it might be the perfect time to add the energy stock to your portfolio.
Devon Energy has recently announced an upcoming partnership with EnLink & MPLX to create a 490-mile pipeline designed to facilitate the transport of 2.5 billion cubic feet of natural gas per day. This will do wonders for Devon Energy’s ability to quickly transport its gas for refinement or sale.
If you’re looking for a good dividend stock, then you’ll be hard-pressed to find one better than Devon Energy, especially in the current economic landscape. It offers a $0.16 quarterly dividend, however, the real magic lies within its variable dividend of up to 50%. The company has pledged up to 50% of its free cash to be returned to investors as special variable dividends. Combined, these two payments equate to around an 8% annualized yield.
Other than dividends, Devon Energy has been using the rest of its free cash to repurchase its stock. This causes there to be fewer shares of Devon Energy on the open market, increasing the company’s earnings-per-share, reducing dividend expenditures, and bolstering its share price.
In early 2021, Devon Energy completed a merger of Equals with WPX Energy. Following this acquisition, shares of Devon have increased in value by a staggering 280%. While oil prices contributed to this figure in a large part, the merger allowed Devon to reduce its costs and increase profits.
Devon is relatively undervalued in price-to-earnings terms. It trades at only 8.8 times earnings, almost 50% below competitors like Hess which trade at 12.88 times. This makes Devon Energy a solid value investment that seems well-prepped to continue trudging along and rewarding investors with great returns.
Is Devon Energy Corp a Good Investment - Negatives
Every investment has some skellingtons in the closest and Devon Energy is no different. It’s important to look at how the company was performing before the massive surge in the value of oil as this will offer us a truer picture of how Devon has been performing.
Despite offering a variable dividend of up to 50%, Devon Energy’s base rate is just $0.16 per quarter. This means that if oil prices drop, we could see Devon’s total dividend payouts decrease by up to 75%. Therefore, it’s important to consider how long you think it’ll be until oil & gas prices will begin to return back to pre-war levels.
Hype Asset of the Day - Conclusion
Overall, Devon Energy is in an incredibly strong position. It’s working well with other oil companies to create the infrastructure that will allow it to improve efficiency and continue growing. Its variable rate dividends have been massively successful, prompting a ton of other oil producers to follow suit. However, while on paper, everything is rosy for Devon, its current valuation is driven in large part by oil prices, meaning if they begin to drop, Devon will follow right behind. If you’d like to hear about more trending stocks, you might want to check out our premium plans. Alternatively, to learn more about the services offered by HypeIndex, head over to our FAQ page.
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