Devon (DVN) To Reward Shareholders With 22% Dividend Hike

Devon Energy’s (NYSE:DVN) board of directors announced a 22% hike in quarterly dividend to 11 cents per share from the previous rate of 9 cents. The new quarterly dividend will be paid on Jun 30, 2020 to its shareholders of record as of Jun 15, 2020. The current annual dividend yield of the company is 1.98%.

Shareholder-Friendly Initiatives

Devon had started to pay out regular quarterly dividend to shareholders from 1993. However, the company had slashed dividend rate by 75% in 2016. This decision was taken to cope with weakness in commodity prices.

In December 2019, its board of directors increased the share repurchase authorization by $1 billion, bringing the total buyback authorization to $6 billion, which has the potential to lower outstanding share count by 30%. During 2019, the company repurchased shares worth $1.85 billion, which will surely have a positive impact on earnings per share.

Can Devon Sustain Dividend Payments?

Devon has taken initiatives to introduce advanced technology to produce high volumes from wells, continue with cost management and generate peer-leading returns on invested capital for its shareholders. Under the plan, the company aims at monetizing non-core assets worth $5 billion and undertaking initiatives for attaining per year cost savings of nearly $780 million by 2021.

Devon has a diversified portfolio and its focus on high-margin U.S.-based assets hold significant long-term growth potential. Devon divested non-core gas assets to concentrate on oil assets, which is in sync with long-term growth objectives. The company aims at generating strong free cash flow through shareholder-friendly initiatives like share buybacks and dividend payments.

U.S. Shale Oil Production on the Rise

Usage of the shale oil extraction technology has resulted in massive increase in oil production in the United States. Per the latest release from the U.S. Energy Information Administration, crude oil production in the United States is likely to touch 12.24 million barrels per day (MMBPD) in 2019, indicating 132% increase from 5.3 MMBPD in 2009. Oil production in 2020 is expected to improve 7.8% from the 2019 level to 13.2 MMBPD and further to 13.6 MMBPD in 2021.

The increase in oil production levels will be supported by U.S. oil and gas operators’ increased focus on producing more oil from liquid-rich reserves. Devon is gaining from oil-focused production and nearly 49% of 2020 production (midpoint of the guidance range) is expected to be oil. WPX Energy (NYSE:WPX) is one such firm that has gradually transformed itself from a natural gas-focused company to an oil-focused one. WPX Energy focuses on holdings in Delaware and Williston Basins. At present, 78.2% production of the company is liquid and the rest is natural gas. This was simply the opposite five years ago. Occidental Petroleum (NYSE:OXY) outbid Chevron Corporation (NYSE:CVX) to acquire Anadarko Petroleum (NYSE:APC) for increasing its presence in the liquid-rich Permian Basin.

Price Performance

Devon’s shares have outperformed its industry in the past 12 months.

Zacks Rank

Devon currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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